Watasenia scintillans (W. scintillans) is a deepsea luminescent squid with a popular name of firefly squid. It produces flashes of blue light via a series of complicated luciferin-luciferase reactions involving ATP, Mg2+, and molecular oxygen. Tsuji has proposed a hypothetical scheme for this mysterious bioluminescence (BL) process, but the proposal is short of strong evidence experimentally or theoretically, especially for two key steps. They are the addition of molecular oxygen to luciferin and the formation of light emitter. For the first time, the present study investigates the two steps by reliable density functional theory (DFT) and time-dependent DFT. The results of calculated energetics, charge transfer process, electronic structures, and molecular dynamics give convincing support for Tsuji's proposal. The oxygenation reaction occurs with a single electron-transfer (SET) mechanism, and the light emitter is produced via mechanism of gradually reversible charge-transfer-induced luminescence (GRCTIL). The simulation of nonadiabatic molecular dynamics further confirms the GRCTIL mechanisms and evaluates the quantum yield of the light emitter to be 43%. The knowledge obtained in the current study will help to understand a large amount of BL systems in nature, since the core structure of W. scintillans luciferin, imidazopyrazinone, is common in the luciferins of about eight phyla of luminescent organisms.