Catalytic activation and conversion of light alkanes by sulfated zirconia is unequivocally shown to be initiated by producing small concentrations of olefins. This occurs via stoichiometric oxidative dehydrogenation of butane by SO3 or pyrosulfate groups to butene (present mostly as alkoxy groups), water, and SO2. Thermal desorption and in situ IR spectroscopy have been used to determine all three reaction products. The concentration of butene formed determines both the catalytic activity of sulfated zirconia as well as the deactivation via formation of oligomers. The thermodynamics of the oxidative dehydrogenation of n-butane by different SZ surface structures has been examined by density functional (DFT) calculations. The calculations show that pyrosulfate or re-adsorbed SO3 species have the highest oxidizing ability.