Selective conversion of lignocellulosic biomass-derived chemicals is of critical significance for sustainable fine and commodity chemical industries. Cellulose-derived levoglucosenone (LGO) has a promising potential for producing 5-hydroxymethylfurfural (HMF) with a substantial yield under acid conditions, but the mechanism is unidentified. Herein, we disclose the mechanism of LGO conversion to HMF in the aqueous phase without and with H2SO4 as a catalyst by density functional theory (DFT) calculations for the first time. Results showed that LGO first forms 6,8-dioxabicyclo[3.2.1]-octane-2,4,4-triol (DH) via two sequential hydration reactions occurring at the C═C bond and then the ketone group. The use of H2SO4 as a catalyst significantly reduced the free energy barriers of LGO and DH conversion to HMF, with a free energy barrier of 115 kJ/mol for LGO → HMF compared to that of 91 kJ/mol for DH → HMF, demonstrating that DH is easier for HMF formation.