Many renewable energy applications and biomass conversion involve decomposition of oxygenates and acid in the presence of water or other solvents. Although simple, the thermal decomposition of acetic acid includes different C-C, C-O, C-OH, CO-H and C-H bond cleavages making it a good model system to study how water affects the various bond cleavages. Here we use a combination of an experimental and computational approach to study how water affects the various bond cleavages and overall selectivity of acetic acid decomposition over Pd (111). Using Density functional theory (DFT) calculations and microkinetic modeling we show that without water a mixture of CO and CO2 is produced while in the presence of water the selectivity is shifted towards CO2. Analysis of the energy landscape shows that dehydrogenation and deoxygenation of CH2COO are the critical steps that separate the CO and CO2 producing paths. Many different elementary steps contribute to the change in selectivity for this reaction but using degree of rate control (DRC) analysis we identify the key intermediates (COOH, CH2COO, CH3COO) and how their DRC changes in the presence of water and with temperature. These findings are further supported by ambient pressure X-ray photoelectron spectroscopy (AP-XPS) and mass spectrometry measurement of acetic acid decomposition over Pd (111) at room temperature and in the 1 mbar pressure range. The addition of water increases the acetic acid coverage but decreases the CO coverage relative to the same conditions without the water. Also, the gas-phase CO2/CO ratio increases from 45% to 80% when acetic acid and water are co-dosed, suggesting an enhancement in CO2 production or inhibition of CO production, in quantitative agreement with the computational studies. The combined computational and experimental molecular insights shows how water effects the different elementary steps leading to overall change in selectivity.