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The critical role of the Ag–Pd ligand effect (which is tuned by changing the number of Pd atomic layers) in determining the dehydrogenation and dehydration of HCOOH on the bimetallic Pd/Ag catalysts was elucidated by using the spin-polarized density functional theory (DFT) calculations. Our calculations suggest that the selectivity to H2 production from HCOOH on the bimetallic Pd/Ag catalysts strongly depends on the Pd atomic layer thickness at near surface. In particular, the thinnest Pd monolayer in the Pd/Ag system is responsible for enhancing the selectivity of HCOOH decomposition toward H2 production by reducing the surface binding strength of specific intermediates such as HCOO and HCO. The dominant Ag–Pd ligand effect by the substantial charge donation to the Pd surface from the subsurface Ag [which significantly reduce the density of state (particularly, d z 2 –r 2 orbital) near the Fermi level] proves to be a key factor for the selective hydrogen production from HCOOH decomposition, whereas the expansive (tensile) strain imposed by the underlying Ag substrate plays a minor role. This work hints on the importance of properly engineering the surface activity of the Ag–Pd core–shell catalysts by the interplay between ligand and strain effects.