The structures of Pd islands at three different Pd coverages (0.028, 0.064, and 0.150 monolayer (ML)) on Ag(111) were studied at room temperature with scanning tunneling microscopy (STM). While previous studies have shown that the structure and composition of Pd islands on Ag(111) change at elevated temperatures, we found that Ag atoms migrate to cover the Pd islands even at room temperature. These Ag atoms occupy sites in the middle of the islands, and second layer growth begins at these sites. The migration of Ag atoms leads to the formation of vacancy islands in the Ag(111) terraces. Upon annealing to 340 K, the majority of the Pd islands are encapsulated by Ag atoms to form an Ag/Pd/Ag(111) structure. However, upon further annealing the composition of some islands at a Pd coverage of 0.150 ML changed to Ag/Ag/Pd/Ag(111).