Iodosobenzene (PhIO) is known to be a potent oxidant for alcohols in the presence of catalytic bromide in water. In order to understand this important and practical oxidation process, we have conducted density functional theory studies to shed light on the reaction mechanism. The key finding of this study is that PhIO is not the reactive oxidant itself. Instead, the active oxidant is hypobromite (BrO-), which is generated by the reaction of PhIO with bromide through an SN2-type reaction. Critically, water acts as a cocatalyst in the generation of BrO- through lowering the activation energy of this process. This investigation also demonstrates why BrO- is a more powerful oxidant than PhIO in the oxidation of alcohols. Other halide additives have been reported experimentally to be less effective catalysts than bromide - our calculations provide a clear rationale for these observations. We also examined the effect of replacing water with methanol on the ease of the SN2 reaction, finding that the replacement resulted in a higher activation barrier for the generation of BrO-. Overall, this work demonstrates that the hypervalent iodine(III) reagent PhIO can act as a convenient and controlled precursor of the oxidant hypobromite if the right conditions are present.