Density functional theory approach was used for the 4-phenyl-2,3-dihydro-1,5-benzodiazepine-2-thione compound to determine the mechanism of hydrazinolysis of 4-substituted 2,3-dihydro-1,5-benzodiazepine-2-thiones. Single-point calculations at the MP2/6-311+G(d,p)//B3LYP/6-311+G(d,p) level were performed for the more accurate energy prediction. The solvent effect was taken into account by carrying out single-point calculations using the PCM methodology. The obtained results show that in the investigating mechanism the first step consists of the hydrazine molecule addition to the thiocarbonyl bond of the 4-phenyl-2,3-dihydro-1,5-benzodiazepine-2-thione following removal of H2S. Further addition of another hydrazine molecule to the azomethyne bond and cyclization with pyrazole ring formation occur, and then the diazepine ring-opening and the removal of hydrazine molecule proceed. Finally, imine-enamine tautomerization leads to 5-N-(2-aminophenyl-1-amino)-3-phenylpyrazole as a main product that is in agreement with the experimental observation. The cyclization step is a rate-determining step of this reaction.