A three-state model for the photo-Fries rearrangement (PFR) is proposed based on multiconfigurational calculations. It provides a comprehensive mechanistic picture of all steps of the reaction, from the photoabsorption to the final tautomerization. The three states participating in the PFR are an aromatic 1ππ*, which absorbs the radiation; a pre-dissociative 1nπ*, which transfers the energy to the dissociative region; and a 1πσ*, along which dissociation occurs. The transfer from 1ππ* to 1nπ* involves pyramidalization of the carbonyl carbon, while transfer from 1nπ* to 1πσ* takes place through CO stretching. Different products are available after a conical intersection with the ground state. Among them is a recombined radical intermediate, which can yield ortho-PFR products after an intramolecular 1,3-H tunneling. The three-state model is developed for phenyl acetate, the basic prototype for the PFR, and it reconciles the theory with a series of observations from time-resolved spectroscopy. It also delivers a rational way to optimize PFR yields, since, as shown for four different systems, diverse substituents can change the energetic order of the 1ππ* and 1nπ* states, preventing or enhancing the PFR.