Nonlocal gradient corrected periodic density functional theory (DFT) was used to investigate the effect of water on the dissociation of acetic acid to the acetate anion and its corresponding proton on the Pd(111) surface. In the gas phase, the homolytic dissociation of acetic acid into acetate and hydrogen radicals (+468 kJ/mol) is clearly favored over its heterolytic dissociation into the acetate anion and proton (+ 1483 kJ/mol). In the presence of water, however, the heterolytic dissociation of acetic acid was found to be thermoneutral. The charged products (acetate ion and proton) are strongly stabilized by water. The metal surface acts to lower the endothermicity of the dissociation step. The energy of dissociation of acetic acid over Pd(111) was found to be +28 kJ/mol in the vapor phase. An analysis of the charge indicates that the dissociation of acetic acid over Pd(111) in the vapor phase is homolytic, forming products which are free radical like. The dissociation of acetic acid over Pd in the presence of water molecules, however, was found to be more heterolytic than in the vapor phase, forming products that have ionic characteristics. The dissociation of acetic acid over Pd(111) in the presence of solvating water molecules was calculated to be +37 kJ/mol. The metal surface stabilizes the acetate species but to a relatively weaker extent than the stabilization provided by the water solvent. The acetate anion was found to be 57 kJ/mol more stable when completely solvated by water molecules than on Pd(111). In the vapor phase, the acetate anion binds with an energy of over - 198 kJ/mol on Pd(111). The surface acts as a "solvent" to shield the negative charge of the ion. In the presence of a solvent, however, the interaction between the acetate ion and the Pd(111) surface is weakened considerably. The interaction between acetate and the surface, however, is nevertheless attractive at -114 kJ/mol. While the acetate anion is thermodynamically more stable when completely solvated by water molecules, there appears to be a barrier for it to desorb from the metal surface.