The mechanism of the chiral phosphoric acid catalyzed Baeyer-Villiger (B-V) reaction of cyclobutanones with hydrogen peroxide was investigated by using a combination of experimental and theoretical methods. Of the two pathways that have been proposed for the present reaction, the pathway involving a peroxyphosphate intermediate is not viable. The reaction progress kinetic analysis indicates that the reaction is partially inhibited by the gamma-lactone product. Initial rate measurements suggest that the reaction follows Michaelis-Menten-type kinetics consistent with a bifunctional mechanism in which the catalyst is actively involved in both carbonyl addition and the subsequent rearrangement steps through hydrogen-bonding interactions with the reactants or the intermediate. High-level quantum chemical calculations strongly support a two-step concerted mechanism in which the phosphoric acid activates the reactants or the intermediate in a synergistic manner through partial proton transfer. The catalyst simultaneously acts as a general acid, by increasing the electrophilicity of the carbonyl carbon, increases the nucleophilicity of hydrogen peroxide as a Lewis base in the addition step, and facilitates the dissociation of the OH group from the Criegee intermediate in the rearrangement step. The overall reaction is highly exothermic, and the rearrangement of the Criegee intermediate is the rate-determining step. The observed reactivity of this catalytic B-V reaction also results, in part, from the ring strain in cyclobutanones. The sense of chiral induction is rationalized by the analysis of the relative energies of the competing diastereomeric transition states, in which the steric repulsion between the 3-substituent of the cyclobutanone and the 3- and 3'-substituents of the catalyst, as well as the entropy and solvent effects, are found to be critically important.