The burning rate of the monopropellant nitromethane (NM) has been observed to increase by adding and dispersing small amounts of functionalized graphene sheets (FGSs) in liquid NM. Until now, no plausible mechanisms for FGSs acting as combustion catalysts have been presented. Here, we report ab initio molecular dynamics simulations showing that carbon vacancy defects within the plane of the FGSs, fimctionalized with oxygen-containing groups, greatly accelerate the thermal decomposition of NM and its derivatives. This occurs through reaction pathways involving the exchange of protons or oxygens between the oxygen-containing functional groups and NM and its derivatives. FGS initiates and promotes the decomposition of the monopropellant and its derivatives, ultimately forming H2O, CO2, and N-2. Concomitantly, oxygen-containing functional groups on the FGSs are consumed and regenerated without significantly changing the FGSs in accordance with experiments indicating that the FGSs are not consumed during combustion.