The reaction of a palladiumII-hydride species with molecular oxygen to form palladiumII-hydroperoxide has been proposed as a key step in Pd-catalyzed aerobic oxidation reactions. We recently reported one of the first experimental precedents for such a step (Angew. Chem., Int. Ed. 2006, 45, 2904-2907). DFT calculations have been used to probe the mechanism for this reaction, which consists of formal insertion of O2 into the palladium-hydride bond of trans-(NHC)2Pd(H)OAc (NHC = N-heterocyclic carbene). Four different pathways were considered: (1) hydrogen atom abstraction (HAA) of the Pd-H bond by molecular oxygen, (2) reductive elimination of HX followed by oxygenation of Pd0 and protonolysis of the (eta2-peroxo)-PdII species, (3) oxygenation of palladiumII-hydride with subsequent reductive elimination of the O-H bond from an eta2-peroxo-PdIV center, and (4) formation of a cis-superoxide adduct of the palladium-hydride species followed by O-H bond formation via hydrogen atom migration. The calculations reveal that pathways 1 and 2 are preferred energetically, and both pathways exhibit very similar kinetic barriers. This result suggests that more than one pathway is possible for catalyst reoxidation in Pd-catalyzed aerobic oxidation reactions.