There is uncertainty in the mechanism for the hydrolysis of peroxyacetyl nitrate (PAN), and experimental attempts to detect products of the direct reaction have been unsuccessful. Ab initio calculations are used to examine the energetics of water-mediated decomposition of gas-phase PAN into acetic acid and peroxynitric acid. On the basis of ab initio calculations, an alternative reaction mechanism for the decomposition of PAN is proposed. The calculations indicate that the barrier for one water addition to PAN is large. However, including additional water molecules reveals a substantially lower energy route. The calculations suggest that the formation of PAN hydrate complexes are energetically favorable and stable. Additional waters are increasingly efficient at stabilizing hydrated PAN.