Ab initio embedded cluster model calculations have been performed to study the decomposition of N2O on MgO and Li/MgO catalysts. The following has been found. (i) On MgO(001) terrace atomic oxygen is adsorbed on top of the O-5c anions, while on corners or steps the preferable mode is for atomic oxygen to bridge over the low-coordinated O-XC-Mg-YC (X, Y = 3, 4) ion pairs. The adsorption of atomic oxygen leads to the formation of a peroxide ion. (ii) N2O decomposition over a five-coordinate terrace anion would be possible, while the defective O-XC-Mg-YC (X, Y = 3, 4) ion pairs are more active to decompose N2O. The activity of the Q(XC)-Mg-YC (X, Y = 3, 4) ion pairs toward N2O decomposition could be assigned in the order O-3C-Mg-3C > O-4C-Mg-3C > O-3C-Mg-4C > O-4C-Mg-4C (iii) When the MgO catalyst is doped with Li, the so-called [Li+O-] centers are found to be active for decomposing N2O, and the decomposition of N2O on the active [Li+O-] center leads to the formation of the superoxide anion. This accounts for the higher reactivity and selectivity of the Li/MgO catalyst.