A detailed ab initio and density functional study of the Boulton−Katritzky rearrangement is presented. Two different reaction paths for the rearrangement of 4-nitrobenzofuroxan were investigated at the RHF, MP2, MP4(SDQ), B3-LYP, and BH&H-LYP levels, with further energy refinements using coupled-cluster theory (CCSD and CCSD(T)). Electron correlation effects appear to be extremely important both for geometries and for relative energies. All methods indicate a one-step mechanism. In agreement with experimental results, a recently discussed tricyclic intermediate could not be found.