The disproportionation of formic acid to methanol catalyzed by a half-sandwich iridium complex, [Cp*Ir(bpy-Me)OH2](2+), was computationally investigated by using density functional theory. A newly proposed mechanism features three interrelated catalytic cycles, the dehydrogenation of formic acid to CO2 and H-2 the hydrogenation of formic acid to formaldehyde with the formation of water, and the hydrogenation of formaldehyde to methanol. Methanol assisted proton transfer and direct C-O bond cleavage after hydroxyl deprotonation in two competitive pathways for the formation of formaldehyde are the rate-determining steps in the whole catalytic reaction. Calculation results indicate that the formation of formaldehyde from methanediol through direct cleavage of a C-O bond after hydroxyl deprotonation has a free energy barrier of 25.9 kcal/mol, which is 1.9 kcal/mol more favorable than methanol assisted proton transfer.