With density functional theory, we have examined oxygen adsorption at surface and subsurface sites of Ag {111}. The microscopic structure of Ag oxide epitaxed to Ag {111} has also been determined. In agreement with a recent scanning tunneling microscopy study, non-stoichiometric oxide growth is favoured over the previously assumed stoichiometric growth. An ab initio phase diagram for O on Ag {111} has been constructed from the adsorption free energy of the various O and Ag oxide phases. The key finding is that under real conditions for ethylene epoxidation the active catalyst is likely to be non-stoichiometric Ag oxide. (C) 2002 Elsevier Science B.V. All rights reserved.