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The acid-catalyzed benzidine rearrangement of hydrazobenzene yields p-benzidine and diphenyline as the main products and some other secondary products such as o-benzidine, o-semidine and p-semidine. Several reaction mechanisms have been proposed for this rearrangement, but none fully describes it. In this work we present the results of an unrestricted DFT(M06-2X) study in which the benzidine rearrangement of the hydrazobenzene is fully described. Some relevant points were also analyzed with the CASSCF and CASPT2 methods. Our theoretical approach properly describes the electronic structure of all species along the reaction pathway. The rearrangement of the hydrazobenzene has been found to take place through a multi-step mechanism in which complexes with dication diradical character similar to those proposed by Dewar play a key role. For the first time, the kinetic isotope effects have been calculated and were found to be in good agreement with the experimental findings. The relative yields of the main products were also correctly estimated. Finally, an explanation of the general acid catalysis observed in some experiments is offered.