Abstract: The catalytic oxidation of CO was comparatively investigated on the Pd slab and Pd₃₈ cluster models by density functional theory (DFT) calculation, in order to reveal the mechanism of CO oxidation over Pd catalysts. The results show that the rate-determining step of CO oxidation on the Pd₃₈ cluster is the dissociation of O₂, with the energy barrier of 0.65 eV, whereas the oxidation of CO turns to be the rate-determining step on Pd slab, with the energy barrier of 0.87 eV. Obviously, the oxidation of CO on the Pd₃₈ cluster is much easier than that on the Pd slab, suggesting that the activity of Pd catalysts is related to the dispersion of active Pd species; the Pd catalyst with higher Pd dispersion also exhibits higher activity in CO oxidation.