The first detailed theoretical study on the synthetically important electron transfer (ET) reductant SmI2–H2O has been conducted in the context of the activation of important alkyliodide, ketone, lactone and ester substrates, processes of importance in cross-coupling. Our studies give major insights into the nature of the reagent and suggest that; (i) H2O has a high affinity for Sm(II) and displaces iodine from the metal center; (ii) SmI2–H2O has 6–7 molecules of H2O directly bound to the metal center; (iii) binding of H2O to Sm(II) promotes coordination of the substrate to Sm(II) and subsequent ET; (iv) resultant ketyl radicals are stabilized by hydrogen-bonding to H2O. The findings add greatly to the understanding of SmI2–H2O and the role of H2O in ET processes, and will facilitate the design of new processes initiated by reductive ET.