Periodic density functional theory (DFT) calculations were carried out to elucidate the reaction mechanisms of NO reduction by H-2 and possible products on Pd(111). The results show that direct NO dissociation is unlikely due to high-energy barrier; alternatively, NO dimer exists on Pd(111) surface followed by the N-O bond scission to form N2O. The presence of H-2 promotes the NO dissociation. The N-2 formation pathway is NO + N -> N-2 + O rather than N + N -> N-2. Besides, N-2 is formed preferentially than N2O from the coadsorbed state of NO + N. The NH3 formation comes from the successive hydrogenation reactions of nitrogen and the NH formation is the rate-determining step. The microkinetic analysis further confirms that N2O is major at low temperature while N-2 becomes dominant as temperature increases. The selectivities toward N-2 and NH3 shift to slightly lower temperature as H-2/NO ratio increases. (C) 2014 Elsevier Inc. All rights reserved.