We report on the results of density functional cluster model calculations on thermodynamical and kinetical aspects of the acetylene cyclotrimerization reaction occurring on single Pd atoms deposited with soft-landing techniques on MgO(100) thin films. The different elementary steps of the reaction as well as the transition states involved have been investigated in detail for Pd atoms adsorbed on different sites of MgO to understand the role of the substrate in this reaction. The analysis of the complete reaction path indicates that only basic defect sites such as neutral and charged oxygen vacancies (F and F+ centers) located at the MgO terraces can activate supported Pd atoms for this process.