Selective acetylene hydrogenation as a vital industrial reaction has been studied for decades. However, some key issues remain elusive. Herein, a detailed microkinetic model using density functional theory energies is developed to comprehensively investigate the key aspects of acetylene hydrogenation on Pd(111). The coverage-dependent kinetic simulation, factoring in both self and cross-interactions of adsorbates as well as the coverage effects on the transition states of each elementary step, is compared with the coverage-independent kinetic calculation derived from energies obtained at low coverages. The accurate determination of the free-energy barrier of ethylene desorption using ab initio molecular dynamics (AIMD) with umbrella sampling adds further crucial insights into the microkinetic model. By combining the coverage-dependent calculations and AIMD results, we achieve a full first-principles kinetic simulation with all the kinetic parameters being systematically calculated to understand the acetylene hydrogenation. We show that the coverage-dependent microkinetic model gives a much more reasonable turnover frequency result of 1.41 s–1 at 300 K than that calculated using the coverage-independent model (3.16 × 10–24 s–1). The microkinetic results, including activity and selectivity, are tested against the experimental data, yielding a good agreement. A comprehensive set of kinetic analyses is performed. It is found that the activity is mainly determined by the barriers of the first two hydrogenation steps. The step with the major effect on the reaction activity is gradually transitioned from the second hydrogenation step, C2H3* + H* ↔ C2H4* + *, to the first hydrogenation step of C2H2* + H* ↔ C2H3* + * as the temperature increases. Both the desorption barrier of ethylene and the hydrogenation barrier of C2H4* cause significant impacts on the selectivity of ethylene, but the former is found to be the most prominent physical quantity affecting the ethylene selectivity.