The mechanism of diazo activation as well as the carbonylation of the resulting carbene complexes has been investigated by means of DFT calculations at the PBE0/TZVP level of theory. The free energy profile of all elementary steps of the reaction, i.e., diazo coordination, dinitrogen extrusion, carbene–CO coupling, CO coordination, and ketene elimination, have been elucidated for diazomethane and ethyl diazoacetate as substrates and for Ni(CO)3, Ni(CO)2(PH3), and Ni(dtbpe)(CO) (dtbpe = 1,2-bis(di-tert-butylphosphino)ethane) as precursors. The reaction rate is determined by the formation of the coordinatively unsaturated precursor followed by the dinitrogen extrusion, regardless of the initial diazo compound and the catalyst precursor. For the homoleptic precursor Ni(CO)3 the free energy of activation for diazomethane and ethyl diazoacetate (EDA) is 16.9 and 22.4 kcal/mol, respectively. The replacement of one carbonyl ligand with PH3 results in a decrease in the activation barrier, modifying the energies to 15.7 and 20.5 kcal/mol, respectively. The activation free energy of the diazo extrusion step promoted by Ni(dtbpe)(CO) is 24.3 kcal/mol for diazomethane and 28.1 kcal/mol for EDA. The formation of carbene complexes is slightly endergonic starting from the homoleptic precursor and exergonic for the phosphine-substituted complex. The carbene–CO coupling, resulting in coordinatively unsaturated ketene complexes, is a fast and highly exergonic process with reaction free energies between −32.3 and −42.1 kcal/mol, depending on the substituents. Under a carbon monoxide atmosphere the ketene complexes may uptake one CO, forming coordinatively saturated ketene complexes via low barriers in exergonic reactions. The final step, i.e., the dissociation of ketene or ethoxycarbonylketene from the saturated ketene complex, regenerates the corresponding nickel–carbonyl precursor. The azine formation side reaction for the simplest case between Ni(CO)3 and diazomethane has been also examined and found to be highly exergonic; however, the large free energy barrier prevents the formation of benzophenone-azine when CO is also present.