A thorough DFT study was performed to unravel the true mechanism involved in the Pd(0)-catalyzed functional group transposition between aroyl chlorides and aryl iodides. Two different experimental groups proposed different mechanisms for the functional group transposition reaction. A careful assessment of experimental findings and thorough computational studies endorsed that the functional group transposition proceeds via phosphonium salt formation and ligand-enabled C–P bond metathesis, leading to the formation of the PhI and the intermediate 2. After the formation of the intermediate 2, the transposition of functional groups takes place through the interpalladium ligand exchange mechanism, where two palladium centers act as shuttle catalysts. In short, both C–P bond metathesis and interpalladium ligand exchange steps are crucial in the functional group transposition mechanism.