Density functional theory (DFT) calculations have been carried out on Pd-catalyzed phosphoryl-directed ortho-olefination to probe the origin of the significant reactivity difference between methyl hydrogen benzylphosphonates and dialkyl benzylphosphonates. The overall catalytic cycle is found to include four basic steps: C−H bond activation, transmetalation, reductive elimination and recycling of catalyst, each of which is constituted from different steps.