We use ab initio plane-wave density functional theory (PW-DFT) to investigate, for the first time, prospective solid base catalytic pathways within anionic clays. MgAl-layered double hydroxides (LDHs) intercalated with tert-butoxide anions are known to be excellent solid base catalysts for a wide range of reactions. PW-DFT is used here to investigate a reaction mechanism proposed by Choudary et al. (Choudary, B. M.; Kantam, M. L.; Reddy, C. V.; Aranganathan, S.; Santhi, P. L.; Figueras, F. J. Mol. Catal. A Chem. 2000, 159, 411 416) for the LDH-t-butoxide-catalyzed transesterification reaction of methylacetoacetate with prop-2-en-1-ol. We have studied a variety of plausible orientations and interactions of molecules within this host-guest system. Our study leads to our postulating an alternative mechanism, which is consistent with both simulation and experiment. Regeneration of the catalyst requires the presence of interlayer water and indicates that the active catalyst is a hydroxide charge balanced LDH, with neutral tert-butyl alcohol molecules present in the LDH host interlayer. The presence of interlayer water and/or hydroxide anions, coupled with the variable interlayer spacing of LDHs, facilitates interactions between the LDH host and the guest species. The hydrophobic nature of the interlayer region in organo-LDHs results in organic substrate molecules with polar functional groups being intercalated in a prefer-red orientation, facilitating reactions and promoting catalytic behavior. Our study illustrates the viability of the PW-DFT method for the study of these systems.