Abstract. When two or more atoms bind to a solid surface, the substrate can mediate an interaction between them. In this paper, we use densityfunctional theory to quantify the substrate-mediated pair interaction between two adatoms on a compressively strained Ag(111) surface and on unstrained Ag(111). On the strained surface, the elastic interaction is significant over the short range and leads to a net attraction between two adatoms. However, at the longest distances probed, the interaction is primarily electronic and repulsive. The repulsion can be as strong at 50 meV, and it forms a ring-like structure around an atom. On unstrained Ag(111), the interaction is primarily electronic in origin and it is weak relative to the interaction found on the strained surface. We calculate the energy barrier for an isolated atom to diffuse in each of these systems. For the strained surface, the magnitude of the diffusion barrier is comparable to that of the adsorbate interaction. We discuss the implications of our findings for growth at surfaces.