In this paper, we present the implementation of the "conductorlike screening model" (COSMO) into the density functional program DMol. The electronic structure and geometry of the solute are described by a density functional method (DFT). The solute is placed into a cavity which has the shape of the solute molecule. Outside of the cavity, the solvent is represented by a homogeneous dielectric medium. The electrostatic interaction between solute and solvent is modeled through cavity surface charges induced by the solvent. The COSMO theory, based on the screening in conductors, allows for the direct determination of the surface charges within the SCF procedure using only the electrostatic potentials. This represents the major computational advantage over many of other reaction held methods. Since the DMol/COSMO energy is fully variational, accurate gradients with respect to the solute coordinates can be calculated for the first time, without any restriction on the shape of the cavity. The solvation energies and optimized molecular structures are calculated for several polar solutes. In addition, the trends in basicity of amines and the relative stabilities of molecular conformers are studied. Our results suggest that for neutral solutes, agreement between calculated and experimental solvation energies of better than about 2 kcal/mol can be achieved.