Methanol serves as energy carrier in direct methanol fuel cells. The decomposition pathways of methanol on Pd(1 1 1) surface in both neutral and alkaline medium are studied by density functional theory. In neutral medium, the activation barriers are rather high for both C-H and O-H bonds breaking of the first decomposition step, which accounts for the low activity of palladium in neutral medium. However, in alkaline medium, the barrier of the O-H bond breaking is greatly reduced to 77 kJ/mol, as compared to 121 kJ/mol in neutral medium, with the assistance of the hydroxyl adsorbed on the surface. The first intermediate of methoxy further decomposes stepwisely to subsequent intermediates, such as formaldehyde, formyl, and carbon monoxide. Furthermore, the carbon monoxide can combine with the adsorbed hydroxyl to form the carboxyl leading to the final product, carbon dioxide. The stepwise pathways involving methoxy, formaldehyde, formyl, carbon monoxide and carbon dioxide, are supported by experimental observations. (C) 2011 Elsevier B.V. All rights reserved.