Levoglucosenone (LGO) is an important anhydrosugar product of fast pyrolysis of cellulose and biomass. We use the high-level G4(MP2) thermochemical protocol to study the reaction mechanism for the formation of LGO from the 1,4:3,6-dianhydro-α-d-glucopyranose (DGP) pyrolysis intermediate. We find that the DGP-to-LGO conversion proceeds via a multistep reaction mechanism, which involves ring-opening, ring-closing, enol-to-keto tautomerization, hydration, and dehydration reactions. The rate-determining step for the uncatalyzed process is the enol-to-keto tautomerization (ΔG‡298 = 68.6 kcal mol–1). We find that a water molecule can catalyze five of the seven steps in the reaction pathway. In the water-catalyzed process, the barrier for the enol-to-keto tautomerization is reduced by as much as 15.1 kcal mol–1, and the hydration step becomes the rate-determining step with an activation energy of ΔG‡298 = 58.1 kcal mol–1.