Our density-functional theory study of the formation of hydrogen peroxide over a neutral Au-3 cluster details a reaction path with activation barriers less than 10 kcal/mol. The reactions proceed on the edges and one side of the triangular Au-3 cluster which makes this mechanism viable for a cluster in contact with a support surface. The Au-3 cluster remains in a triangular geometry throughout the reaction but the electron population on the Au trimer during the catalytic cycle proper, as calculated with the Natural Bond Orbital method, varies from a charge of +0.304 (cationic) (Au3O2H2) to -0.138 (anionic) (Au3H2). Au-3 in the reaction initiation intermediate, Au3O2, is also cationic in character with a charge of +0.390. It is interesting to note that the interaction of Au-3 with a model oxidic support, TS-1, was essentially neutral in character, the Au-3 charge population being -0.044. Formation of hydrogen peroxide does not involve breaking the O-O bond, but does break the H-H bond in a step that is rate limiting under standard conditions. The highest energy barrier in the cycle is 8.6 kcal/mol for desorption of H2O2 from Au3H2. Adsorption of H2O2 on this site is unactivated. This route to formation of hydrogen peroxide combined with existing mechanisms for epoxidation by H2O2 over TS-1 gives a fully plausible, energetically favorable, closed cycle for epoxidation of propylene by H-2 and O-2 over Au/TS-1 catalysts. Thus, isolated molecular gold clusters can act as viable sites for this reaction. (C) 2004 Elsevier Inc. All rights reserved.