Photochemistry provides green alternatives to traditional reaction conditions and opens up routes toward products that are otherwise difficult to make. Recent work by Koenigs and co-workers demonstrated the blue-light-driven O–H functionalization of alcohols by aryldiazoacetates. Based on spectroscopic and computational analyses, Koenigs and co-workers demonstrated that the alcohols form a hydrogen-bonding complex with aryldiazoacetates prior to the light absorption, with the strength of hydrogen bonding correlated with the product yield. Because methyl phenyldiazoacetate (MPDA) was observed to preferentially react with alcohols over cyclopropanation with styrene, the reaction was speculated to occur via excited-state proton transfer, with MPDA acting as a photobase. In this paper, we use time-dependent density functional theory to show that the electronic excited state of aryldiazoacetates is inconsistent with photobasicity. Instead, we argue that the reaction proceeds via a carbene intermediate generated through the photolysis of the aryldiazoacetate. Using density functional theory, we demonstrate that the reaction between the singlet state of the carbene intermediate and the alcohol is thermodynamically favorable and very fast. Moreover, we provide a rationalization for the experimentally observed preference for O–H functionalization with alcohols over cyclopropanation with alkenes. Overall, this work provides a refined mechanistic understanding of an interesting photochemical transformation.