Density functional theory has been used to investigate the thermodynamics and activation barriers associated with the direct oxidation of methane to acetic acid catalyzed by Pd2+ cation in concentrated sulfuric acid. Pd2+ cations in such solutions are ligated by two bisulfate anions and by one or two molecules of sulfuric acid. Methane oxidation is initiated by the addition of CH4 across one of the Pd-O bonds of a bisulfate ligand to form Pd(HSO4)(CH3)(H2SO4)(2). The latter species will react with CO to produce Pd(HSO4)(CH3CO)(H2SO4)(2). The most likely path to the final products is found to be via oxidation of Pd(HSO4)(CH3)(H2SO4)(2) and Pd(HSO4)(CH3CO)(H2SO4)(2) to form Pd(eta(2)-HSO4)(HSO4)(2)(CH3)(H2SO4) and Pd(eta(2)-HSO4)(HSO4)(2)(CH3CO)(H2SO4), respectively. CH3HSO4 or CH3COHSO4 is then produced by reductive elimination from the latter two species, and CH3COOH is then formed by hydrolysis of CH3COHSO4. The loss of Pd2+ from solution to form Pd(O) or Pd-black is predicted to occur via reduction with CO. This process is offset, though, by reoxidation of palladium by either H2SO4 or O-2.