Surface modification by noble metal nanoparticles has been proved highly effective on response enhancement of a semiconductor gas sensor. In this work, the adsorption of NO2 on Ag-modified silicon nanowire (Ag@SiNW) was investigated by means of density functional theory (DFT) calculations with aim to explore the nature and theoretical mechanism of Ag modification for sensing response enhancement. Ag surface modification tunes the electronic structure of SiNW considerably, which is further moderated by the spontaneous adsorptions of NO2 on surface Si site and on the modified Ag atom. The modified Ag as a donor creates an n-doping state, activating the surface Si atom and promoting the adsorption of Si surface to NO2 gas. Nevertheless, Mulliken charge transfer calculations clarify that the enhanced response observed experimentally for an Ag@SiNW sensor is mainly attributed from the gas adsorption right on Ag atom. The adsorbed NO2 on modified Ag atom captures 1.27 e from the nanowire surface, which is more than twice as much as that with Si site adsorption. The calculations on geometry and charge density difference reveal the catalyst nature of the modified Ag for NO2 adsorption and further clarify theoretically the possible reaction of NO2, i.e., dissociation and spillover, occurring on the Ag atom. Besides, a defect-induced preferential etching mechanism of metal (Ag)-assisted chemical etching (MACE) for SiNW was proposed from a new perspective based on the lattice distortion analysis induced by Ag modification.