For the first time the computed mechanisms for the novel reaction of 2-naphthol with N-methyl-N-phenylhydrazine, leading to 1-amino-2-naphthol (Tang et al., J Am Chem Soc 2008, 130, 5840), have been investigated using the density functional theory. Four distinct possible pathways were evaluated: two amination mechanisms with the attack of NH(2) group respectively at the α-position C1 and β-position C3 atoms of 2-naphthol (pathways 1 and 2) as well as two rearrangement processes with displacement of the phenolic hydroxyl group followed by the benzidine-like rearrangement at the α-position C1 and β-position C3 atoms of 2-naphthol, respectively (pathways 3 and 4). Solvent effect has been tested based on the optimized geometries of the stationary points in solution at the B3LYP/PCM/6-31+G(d,p) level of theory with an averaged dielectric constant of binary solvent. Single-point energies of the optimized structures have been calculated using three hybrid density functionals, B3LYP, MPW3LYP, and B3PW91 with the 6-311++G(3df,2p) basis set. Our computed results clearly manifest that pathway 1 (α-amination) has the highest possibility to occur, with the Gibbs free energies being lower by 6 to 20 kcal/mol compared with the other three pathways, which leads to 1-amino-2-naphthol and N-methylaniline as products. It is in excellent agreement with the experimental observation.