Urea, urea dimer, and the complexes of urea and water molecules were studied using density functional theory. A hydrogen-bonded, cyclic urea dimer was found to be the most stable conformation. Its binding energy, 10.9 kcal/mol, was obtained using a gradient-corrected density functional approach. The conformations of minimum energy isomers of urea with water molecules were also determined. The stability of the urea dimer in solution was investigated by systematically increasing the number of the water molecules in the system. Our results indicate that, due to hydrogen bonding between urea and water, the urea dimer would be unstable and would separate into monomers when the number of water molecules becomes sufficiently large.