A detailed model for the reaction mechanism of the samarium diiodide (SmI2) mediated reductive coupling of N-oxoalkyl-substituted methyl indole-3-carboxylates is developed in this study by determining the Gibbs energies for the intermediates of possible reaction pathways. The Gibbs energies at ambient temperature are calculated with dispersion corrected density functional theory in combination with implicit (D-COSMO-RS) and explicit solvent description. Temperature dependent ro-vibrational contributions are considered with the help of statistical thermodynamics. In contrast to previous proposals for the reaction mechanism, the high diastereoselectivity in the cyclization is found to be due to the formation of an energetically highly favorable chelate complex in which the final relative configuration is already preformed. After cyclization and a second electron transfer, alkylation of the resulting anion takes place under kinetic control from the more "open" face whereas protonation is under thermodynamic control. The calculations are in good agreement with these experimental findings.