Density functional theory is used to explore the energy landscape of Pd atoms adsorbed on the terrace of MgO(1 0 0) and at oxygen vacancy sites. Saddle point finding methods reveal that small Pd clusters diffuse on the terrace in interesting ways. The monomer and dimer diffuse via single atom hops between oxygen sites with barriers of 0.34 eV and 0.43 eV respectively. The trimer and tetramer, however, form 3D clusters by overcoming a 2D-3D transition barrier of less than 60 meV. The trimer diffuses along the surface either by a walking or flipping motion, with comparable barriers of ca. 0.5 eV. The tetramer rolls along the terrace with a lower barrier of 0.42 eV. Soft rotational modes at the saddle point lead to an anomalously high prefactor of 1.3 · 10 14 s À1 for tetramer diffusion. This prefactor is two order of magnitude higher than for monomer diffusion, making the tetramer the fastest diffusing species on the terrace at all temperatures for which diffusion is active (above 200 K). Neutral oxygen vacancy sites are found to bind Pd monomers with a 2.63 eV stronger binding energy than the terrace. A second Pd atom, however, binds to this trapped monomer with a smaller energy of 0.56 eV, so that dimers at defects dissociate on a time scale of milliseconds at room temperature. Larger clusters bind more strongly at defects. Trimers and tetramers dissociate from monomer-bound-defects at elevated temperatures of ca. 600 K. These species are also mobile on the terrace, suggesting they are important for the ripening observed at P600 K during Pd vapor deposition on MgO(1 0 0) by Haas et al.