Furfural (FF) is a valuable ring-containing organic compound in the decomposition of xylose and can be produced massively in hydrothermal condition. In this study, density functional theory (DFT) methods are employed to investigate the formation mechanism of FF from xylose and the solvent effects on FF formation. Kinetic and thermodynamic analyses indicate that xylulose could be the intermediate that leads to the formation of FF in the gas phase and water. The formation of xylulose is initiated by a six-membered transition state with energy barriers of 163.6 and 150.8 kJ mol−1 in the gas phase and water, respectively. It is found that the strong stabilization of the reactants and transition states and the overall energy barriers of formation pathways of FF are reduced in water. The formation of FF is more thermodynamically favored in water compared with that in the gas phase. In addition, the inclusion of an explicit water molecule transforms four-membered transition states of ring-opening reaction, hydrogenation-cyclization, and dehydrations into less distorted six-membered transition states, which leads to the significant reduction of reaction barriers of FF formation.