The mechanism of the reaction between carbodiimides and activated α,β-unsaturated carboxylic acids yielding fully substituted hydantoins and variable amounts of N-acyl urea by-products was studied using density functional theory calculations. Two alternative pathways featuring N-acyl ureas and imino-oxazolidinones as intermediates for the formation of the hydantoin product were taken into account. The results obtained using two different computational models indicate that the overall barriers are similar for the two pathways considered. In all cases, inclusion of a second molecule of carboxylic acid was required to mediate tautomerizations and rearrangement steps. The calculations successfully reproduce the experimentally observed regioselectivity with respect to both N-acyl urea and hydantoin products.