Density functional theory calculations were performed to investigate the reaction mechanism of the aerobic oxidation of benzyl alcohol to benzaldehyde catalyzed by Au and Au–Pd clusters. Two consecutive reaction mechanisms were examined with Au8 and Au6Pd2 clusters: (1) the oxidation of benzyl alcohol with dissociated O atoms on metal clusters generating benzaldehyde and H2O; and (2) oxidation with adsorbed oxygen molecules generating benzaldehyde and H2O2. The calculations show that the aerobic oxidation of benzyl alcohol energetically prefers to proceed in the former mechanism, which agrees with the experimental observation. We demonstrate that the role of Au centers around the activation of molecular oxygen to peroxide-like species, which are capable of the H–abstraction of benzyl alcohol. The roles of Pd in the Au6Pd2 cluster are: (1) increasing the electron distribution to neighboring Au atoms, which facilitates the activation of O2; and (2) stabilizing the adsorption complex and transition states by the interaction between positively charged Pd atoms and the π-bond of benzyl alcohol, both of which are the origin of the lower energy barriers than those of Au8.