The catalytic activity of Pd overlayers and Pd/Au surface alloys on Au{111} toward acetylene cyclization has been studied as a function of surface morphology and composition using LEED, XP and Auger spectroscopy, temperature-programmed reaction, and STM. At 300 K pseudomorphic islands of Pd nucleate and grow uniformly from the partial surface dislocations of the Au{111} herringbone reconstruction. Even 0.1 monolayer (ML) Pd loadings are catalytically effective, and activity scales linearly with coverage by these monolayer Pd islands up to similar to 0.6 ML. Beyond this point, concurrent growth of higher layers leads to a roughened surface, the appearance of new binding sites for reactively formed benzene, and ultimately the suppression of all cyclization activity, thus demonstrating the extreme structure sensitivity of the system. Annealing rough Pd films restores activity and can be used to induce surface alloy formation. Core-level spectra indicate that electronic perturbation of Pd by Au is insignificant and the Au/Pd surface alloy behaves as a very effective catalyst. The principal effect of Au atoms at the surface is to modify, the ensembles available for reactant and product adsorption, influencing conversion of the former and strongly enhancing the desorption rate of the latter. Mechanistic implications of these findings are discussed, and their relevance to an understanding of the cyclization behaviour of supported Pd and Au/Pd catalysts operated at atmospheric pressure is indicated.