Nonlocal gradient-corrected periodic density functional theory (DFT) calculations have been carried out to examine the hydrogenation of acetylene over Pd(111). The binding energies of acetylene, atomic hydrogen, vinyl, and ethylene at 25% (33%) coverage were computed to be -172 (-136), -260 (-248), -274 (-235), and -82 (-62) kJ/mol, respectively. The reaction energy for acetylene hydrogenation to vinyl over Pd(111) was found to be -26 (-43) kJ/mol at 25% (33%) coverage. The overall reaction energy for vinyl hydrogenation to ethylene was calculated to be -58 and -731 kJ/mol at 25% and 33% coverages, respectively. Acetylene hydrogenation to vinyl is therefore less exothermic than vinyl hydrogenation to ethylene. The intrinsic activation barrier for the addition of atomic hydrogen to acetylene over Pd was calculated to be +66 kJ/mol at 25% coverage and +50 kJ/mol at 33% coverage. The barrier for vinyl hydrogenation to form ethylene over Pd-(111) at 25% coverage was computed at +85 kJ/mol while that at 33% coverage was found to be +78 kJ/mol. Higher pressures of hydrogen can also lead to the formation of surface Pd hydride phases that could alter the hydrogenation kinetics. Initial results for Pd(111) with a 2 × 2 subsurface layer of hydrogen, indicate that there are moderate changes in the adsorption energies due to the presence of subsurface hydrogen. The changes in the overall reaction energies and activation barriers, however, are less than 3 kJ/mol. The activation barrier for hydrogen to diffuse from the subsurface was calculated to be +58 kJ/mol.