The low reactivity of the oxygen reduction reaction (ORR) occurring on the cathode surface is a great challenge for designing an effective proton exchange membrane fuel cell. In this work, we assess the possibility of Pd-skin/Pd3Fe(111) alloy as the catalytic cathode for improving the performance of fuel cells. By using the density functional theory calculations, we studied the ORR activity and the stability of this alloy in the ORR environment. Looking at the energies of the reaction intermediates, Pd-skin/Pd3Fe(111) alloy was found to be more reactive than the PdCo alloy studied previously. It was found that having a monolayer of Fe atoms beneath the Pd-skin layer maximizes the ORR activity and the dissolution potential. However, the calculations also showed that surface segregation of the Fe atoms would be an issue for the stability of the Pd-skin structure in ORR environment. [GRAPHICS] .