The mechanism of the phenomenon of sonoluminescence is unknown. Hypotheses include: hotspot, bremsstrahlung radiation, collision-induced radiation and corona discharges, nonclassical light, proton tunneling, electrodynamic jets and fractoluminescent jets (now largely discredited due to contrary experimental evidence). 
In 2002, M. Brenner, S. Hilgenfeldt, and D. Lohse published a 60-page review that contains a detailed explanation of the mechanism. An important factor is that the bubble contains mainly inert noble gas such as argon or xenon (air contains about 1% argon, and the amount dissolved in water is too great; for sonoluminescence to occur, the concentration must be reduced to 20–40% of its equilibrium value) and varying amounts of water vapor. Chemical reactions cause nitrogen and oxygen to be removed from the bubble after about one hundred expansion-collapse cycles. The bubble will then begin to emit light. The light emission of highly compressed noble gas is exploited technologically in the argon flash devices.
During bubble collapse, the inertia of the surrounding water causes high pressure and high temperature, reaching around 10,000 kelvins in the interior of the bubble, causing the ionization of a small fraction of the noble gas present. The amount ionized is small enough for the bubble to remain transparent, allowing volume emission; surface emission would produce more intense light of longer duration, dependent on wavelength, contradicting experimental results. Electrons from ionized atoms interact mainly with neutral atoms, causing thermal bremsstrahlung radiation. As the wave hits a low energy trough, the pressure drops, allowing electrons to recombine with atoms and light emission to cease due to this lack of free electrons. This makes for a 160-picosecond light pulse for argon (even a small drop in temperature causes a large drop in ionization, due to the large ionization energy relative to photon energy). This description is simplified from the literature above, which details various steps of differing duration from 15 microseconds (expansion) to 100 picoseconds (emission).
Computations based on the theory presented in the review produce radiation parameters (intensity and duration time versus wavelength) that match experimental results with errors no larger than expected due to some simplifications (e.g., assuming a uniform temperature in the entire bubble), so it seems the phenomenon of sonoluminescence is at least roughly explained, although some details of the process remain obscure.
Any discussion of sonoluminescence must include a detailed analysis of metastability. Sonoluminescence in this respect is what is physically termed a bounded phenomenon meaning that the sonoluminescence exists in a bounded region of parameter space for the bubble; a coupled magnetic field being one such parameter. The magnetic aspects of sonoluminescence are very well documented.