Various mechanisms for the cyclometalation of dimethylbenzylamine by palladium acetate have been studied by DFT calculations. Contrary to previous suggestions, the rate-limiting step is the electrophilic attack of the palladium on an ortho arene C-H bond to form an agostic complex rather than a Wheland intermediate. The cyclometalated product is then formed by intramolecular deprotonation by acetate via a six-membered transition state; this step has almost no activation barrier.