A carbon-silver anode has recently been shown to suppress dendrite formation in all-solid-state lithium-ion batteries. The role that silver plays in enabling the reversible deposition and stripping of lithium remains unknown. Furthermore, very little is known about the thermodynamic and kinetic properties of Li x Ag1-x alloys. Here, we report on an in-depth first-principles study of phase stability and diffusion mechanisms in the Li-Ag alloy system. We identify two new intermetallic phases that are predicted to be stable in Li-rich Li x Ag1-x alloys with stoichiometries of Li3Ag and Li11Ag2. Our calculations show that the peculiar and highly anharmonic energy surface of pure Li along the Bain and Burgers paths persists upon the addition of Ag to BCC Li. This has important implications for room-temperature phase stability and mechanical properties. We have also performed a systematic study of diffusion mechanisms in the Li x Ag1-x alloy system as a function of alloy concentration x. Diffusion in alloys and intermetallics is mediated by vacancies. High vacancy formation energies are predicted in the Li x Ag1-x alloy, especially in Ag-rich FCC solid solutions. Complex diffusion mechanisms are identified in the B2 and γ-brass intermetallic phases that include two-atom hops and second-nearest neighbor hops. The migration barriers are found to decrease with increasing Li concentration, with predictions of exceptionally low migration barriers of 0.1 eV in the D03 Li3Ag phase.