The electronic and magnetic properties of neutral substitutional transition-metal dopants in dia- mond are calculated within density functional theory using the generalized gradient approximation to the exchange-correlation potential. Ti and Fe are nonmagnetic, whereas the ground state of V, Cr and Mn are magnetic with a spin entirely localized on the magnetic ion. For Co, Ni, and Cu, the ground state is magnetic with the spin distributed over the transition-metal ion and the nearest-neighbor carbon atoms; furthermore a bound state is found in the gap that originates from the hybridization of the 3d-derived level of the dopant and the 2p-derived dangling bonds of the nearest-neighbor carbons. A p{d hybridization model is developed in order to describe the origin of the magnetic interaction. This model predicts high-spin to low-spin transitions for Ni and Cu under compressive strain.