The catalytic construction of well-defined materials from mixtures of building blocks is an important challenge in sustainable catalysis. In this regard, we have recently reported a new type of selective ring-opening terpolymerisation (ROTERP), in which three monomers (A, B, C) are selectively enchained into a (ABA′C)n sequence, but the reasons behind this unusual selectivity remained unanswered. In this study, we present a detailed investigation into the full ROTERP mechanism based on the reactivity of model intermediates, computational studies investigating >100 possible intermediates and transition states and reaction kinetics. Experimental verification of the intermediate speciation, the primary insertion steps and the side-reactions lets us show that although most insertions and side-reactions are thermodynamically viable, kinetic selection processes at the propagating chain end determine the sequence selectivity. Computational studies elucidate the special role and speciation of the lithium catalyst which during the catalytic cycle involves mono-metallic, bi-metallic and charge separated transition states comprising both coordinative activation of incoming monomers and functional groups of the polymer backbone adjacent to the propagating chain. Our study not only deciphers the mechanism of a rare selective terpolymerisation but also helps answering open questions relevant to ring-opening copolymerisation (ROCOP) and alkali-metal catalysis in general, thus guiding the design of future polymerisation catalysis for degradable materials.