In situ C-13 NMR measurements on samples prepared using a pulse-quench catalytic reactor show that the 1,3-dimethylcyclopentenyl carbenium ion (1) is an intermediate in the synthesis of toluene from ethylene on zeolite catalyst HZSM-5. Cation 1 forms in less than 0.5 s when ethylene is pulsed onto the catalyst bed at 623 K, and its presence obviates the kinetic induction period for conversion of a subsequent pulse of dimethyl ether, or methanol, into olefins (MTO chemistry). The kinetic induction period returns when the interval between pulses is many times the half-life of 1 in the catalyst bed. Density functional theory calculations (B3LYP/ 6-311G**) on a cluster model of the zeolite confirm that I is stable in the zeolite as a free cation and suggest why the alternative framework alkoxy is not observed. A pi complex of the neutral cyclic diene is only 2.2 kcal/mol higher in energy than that of the ion pair. Theoretical (GIAO-MP2/tzp) C-13 isotropic shifts of isolated 1 are in good agreement with the experimental spectra of the cation in the zeolite. To understand how organic species entrained in the catalyst could promote MTO chemistry, we calculated a number of methylation reactions in the gas phase. We found that the diene formed by deprotonation of 1 is far more easily methylated than ethylene, propene, or toluene. The aggregate experimental and theoretical results reveal the essential features of a mechanism for MTO and methanol to gasoline (MTG) chemistry on a working catalyst.