The direct formation of N-heterocycles from aromatic hydrocarbons has been observed in nitrogen-based low-temperature plasmas; the mechanism of this unusual nitrogen-fixation reaction is the topic of this paper. We used homologous aromatic compounds to study their reaction with reactive nitrogen species (RNS) in a dielectric barrier discharge ionization (DBDI) source. Toluene (C7H8) served as a model compound to study the reaction in detail, which leads to the formation of two major products at "high" plasma voltage: a nitrogen-replacement product yielding protonated methylpyridine (C6H8N+) and a protonated nitrogen-addition (C7H8N+) product. We complemented those studies by a series of experiments probing the potential mechanism. Using a series of selected-ion flow tube experiments, we found that N+, N2+, and N4+ react with toluene to form a small abundance of the N-addition product, while N(4S) reacted with toluene cations to form a fragment ion. We created a model for the RNS in the plasma using variable electron and neutral density attachment mass spectrometry in a flowing afterglow Langmuir probe apparatus. These experiments suggested that excited-state nitrogen atoms could be responsible for the N-replacement product. Density functional theory calculations confirmed that the reaction of excited-state nitrogen N(2P) and N(2D) with toluene ions can directly form protonated methylpyridine, ejecting a carbon atom from the aromatic ring. N(2P) is responsible for this reaction in our DBDI source as it has a sufficient lifetime in the plasma and was detected by optical emission spectroscopy measurements, showing an increasing intensity of N(2P) with increasing voltage.