The present paper deals with the long standing problem of understanding the dissociation of I2 molecules in chemical oxygen-iodine lasers (COILs). The dissociation was studied at the optical axis of a supersonic COIL via detailed measurements and three dimensional computational fluid dynamics calculations. Comparing the measurements and the calculations enabled critical examination of previously proposed dissociation mechanisms and suggestion of a mechanism consistent with the experimental and theoretical results obtained in a supersonic COIL for the gain, temperature and I2 dissociation fraction at the optical axis. The suggested mechanism combines the recent scheme of Azyazov and Heaven (AIAA J. 44, 1593 (2006)), where I2(A' 3∏2u), I2(A3∏ 1u) and O2(a1Δg, v) are significant dissociation intermediates, with the "standard" chain branching mechanism of Heidner et al. (J. Phys. Chem. 87, 2348 (1983)), involving I(2P1/2) and I2(X1∑ g+,v).