The photophysical and photochemical properties of the merocyanine dye 1-methyl-2-(4-hydroxystyryl)pyridinium betaine (M) have been studied in aqueous solution at the PM3-SCRF (SCRF = self-consistent reaction field) level of theory. The trans isomer is more stable than the cis one by 6 kcal/mol, and the energy gap decreases upon protonation to 2.4 kcal/mol. Protonation on nitrogen is energetically unfavorable and costs at least 31 kcal/mol more energy than protonation on oxygen. The acidity of the O-protonated form (MH+) soars up on excitation as inferred from the decrease in the proton affinity values. Potential energy surfaces (PES) for the ground and lowest excited states for the O-protonated (MH+) and unprotonated (M) forms of the dye have been constructed to explore the deactivation pathways of the excited states. Upon excitation the protonated form adopts the quinonoid geometry of the central single bond, and the trans reversible arrow cis photoisomerization goes through a minimum, referred to as the phantom state, of 90 degrees twisted molecular architecture located on the potential energy surface of its first excited singlet state. For the unprotonated form (M), the cis --> trans isomerization is a downhill process of a quite negligible energy barrier, surmountable thermally at room temperature. The photochemical/protolytic cycle M-trans reversible arrow MHtrans+ reversible arrow MHcis+ reversible arrow M-cis --> M-trans could be utilized in the storage of information and its subsequent carrier retrieval. The optical transitions are xy-plane polarized pi-pi* transitions and are expected at 372 nm (experiment, 364 nm) and 428 nm (experiment, 426 nm) for MH+ and M, respectively, in aqueous medium. Within the framework of the SCRF model, the unprotonated form (M) exhibits a slight positive solvatochromism. The hydrogen bond donor ability of the solvent is likely the key factor behind the experimentally observed negative solvatochromism.