The mechanism of ethylene epoxidation with hydrogen peroxide over Ti-substituted silicalite (TS-1) catalyst was investigated by using both the cluster and embedded cluster approaches at the B3LYP/6-31G(d) level of theory. The complete catalytic cycle was determined. The epoxidation of ethylene consists of three steps. First, the chemisorption of H2O2 at the Ti active site forms the oxygen donating Ti-OOH species and then the transfer of an oxygen atom from the Ti-OOH species to the adsorbed ethylene. The final step is the dehydration of the Ti-OH species to regenerate to active center. The oxygen atom transfer step was found to be the rate-limiting step with the zero-point energy corrected barrier of 17.0 kcal/mol using the embedded cluster model at B3LYP/6-31G(d) level of theory, which is in agreement with the experimental estimate of about 16.7 kcal/mol. Regeneration of the active center by dehydration of the Ti-OOH species was found to have a rather small barrier and the overall process is exothermic. Our results also show that inclusion of the effects of the zeolite crystal framework is crucial for obtaining quantitative energetic information. For instance, the Madelung potential increases the barrier of the oxygen atom transfer step by 5.0 kcal/mol. (C) 2003 Elsevier B.V. All rights reserved.