The molecular mechanism for H-2 production and H2O decomposition on an aromatic Ru(II) PNN complex developed by Milstein and co-workers has been elucidated by detailed density functional theory calculations. The rate-determining step is heterolytic coupling of the hydride with a proton transferred from the PNN ligand, which leads to the formation of H-2. The metal center and the PNN ligand, which can be dearomatized and aromatized again, play active and synergistic roles in H-2 production and the succeeding H2O decomposition. Formation of the cis-dihydroxo complex as the main final product is a result of thermodynamic control.