Recently, a novel concept for the design of selective and stable catalysts for the hydrogenation of alkynes has been announced - the isolation of the active sites on the surface of a complex intermetallic compound. The basic idea is that isolated active sites enable only a reduced number of possible adsorption geometries for the reactants, leading to a narrower range of possible reaction products. However, so far an atomistic scenario for the complex multi-step hydrogenation process catalyzed by complex intermetallic compounds has not yet been developed. Here, we present detailed ab initio density-functional simulations of the surface structure and of the selective hydrogenation of acetylene to ethylene on the (100) surface of the compound Al13Co4. In agreement with recent STM investigations, our calculations show that the surface is highly corrugated with well-separated Co surface atoms in the center of CoAl5 pentagons. The activation energies for the rate-controlling steps are found to be comparable or even lower than those calculated for conventional Pd or Pd-Ag catalysts, and the desorption energy of ethylene is lower than the barrier to further hydrogenation to ethyl. This confirms that Al13Co4 is an efficient as well as highly selective catalyst. Our results demonstrate that the active sites are not the Co atoms alone, but pentagonal CoAl5 clusters forming zig-zag chains on the surface separated by wide troughs. The high activity of the Al atoms in these clusters is promoted by the strong, partially covalent bonding between Al and Co atoms, as well as by their low coordination in a surface with a very complex topology. (C) 2010 Elsevier Inc. All rights reserved.