The mechanism of the catalytic Kinugasa reaction is investigated by means of density functional theory calculations. Different possible mechanistic scenarios are presented using phenanthroline as a ligand, and it is shown that the most reasonable one in terms of energy barriers involves two copper ions. The reaction starts with the formation of a dicopper-acetylide that undergoes a stepwise cycloaddition with the nitrone, generating a five-membered ring intermediate. Protonation of the nitrogen of the metalated isoxazoline intermediate results in ring opening and the formation of a ketene intermediate. This then undergoes a copper-catalyzed cyclization by an intramolecular nucleophilic attack of the nitrogen on the ketene, affording a cyclic copper enolate. Catalyst release and tautomerization gives the final β-lactamic product. A comprehensive study of the enantioselective reaction was also performed with a chiral bis(azaferrocene) ligand. In this case, two different reaction mechanisms, involving either the scenario with the two copper ions or a direct cycloaddition of the parent alkyne using one copper ion, were found to have quite similar barriers. Both mechanisms reproduced the experimental enantioselectivity, and the current calculations can therefore not distinguish between the two possibilities.