The ammonia dimer (NH3)(2) has been investigated using high-level ab initio quantum chemistry methods and density functional theory. The structure and energetics of important isomers are obtained to unprecedented accuracy without resorting to experiment. The global minimum of eclipsed C-s symmetry is characterized by a significantly bent hydrogen bond which deviates from linearity by as much as approximate to20degrees. In addition, the so-called cyclic C-2h structure, resulting from further bending which leads to two equivalent "hydrogen bonding contacts," is extremely close in energy on an overall flat potential energy surface. It is demonstrated that none of the currently available [generalized gradient approximation (GGA), meta-GGA, and hybrid] density functionals satisfactorily describe the structure and relative energies of this nonlinear hydrogen bond. We present a novel density functional, HCTH/407+, which is designed to describe this sort of hydrogen bond quantitatively on the level of the dimer, contrary to, e.g., the widely used BLYP functional. This improved generalized gradient approximation functional is employed in Car-Parrinello ab initio molecular dynamics simulations of liquid ammonia to judge its performance in describing the associated liquid. Both the HCTH407+ and BLYP functionals describe the properties of the liquid well as judged by analysis of radial distribution functions, hydrogen bonding structure and dynamics, translational diffusion, and orientational relaxation processes. It is demonstrated that the solvation shell of the ammonia molecule in the liquid phase is dominated by steric packing effects and not so much by directional hydrogen bonding interactions. In addition, the propensity of ammonia molecules to form bifurcated and multifurcated hydrogen bonds in the liquid phase is found to be negligibly small. (C) 2003 American Institute of Physics.