We present a density-functional-theory study of formaldehyde and methanol synthesis from CO and H-2 on a Ni catalyst. We investigate the intermediate products of the reaction and calculate the reaction enthalpy and energy barrier for each elementary reaction, taking into account several different adsorption geometries and the presence of isomers of the intermediate products. Hydrogenation of CO is favored over desorption or dissociation of CO on flat Ni(111), to form the formyl radical (HCO) or its isomer, COH. Subsequent hydrogenation leads to formaldehyde (CH2O), Methoxy (CH3O), and, finally, methanol (CH3OH). The overall reaction barrier for formaldehyde and methanol formation is 2.0 eV.