The dissociation of I2 molecules at the optical axis of a supersonic chemical oxygen-iodine laser (COIL) was studied 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 t3∏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(X1Σ +g, v). In addition, we examined a new method for enhancement of the gain and power in a COIL by applying DC corona/glow discharge in the transonic section of the secondary flow in the supersonic nozzle, dissociating I2 prior to its mixing with O2( 1Δ). The loss of O2(1Δ) consumed for dissociation was thus reduced and the consequent dissociation rate downstream of the discharge increased, resulting in up to 80% power enhancement. The implication of this method for COILs operating beyond the specific conditions reported here is assessed.