This study reports first principles calculations performed to study the electronic structure and catalytic activity of exsolved Ni on Pd core–shell catalysts reported in recent experimental literature. The modification in the electronic and geometric properties of the Ni/Pd bimetallic system as successive layers of Ni are added on top of Pd is systematically investigated using the d-band model as well as the adsorption of O and CO on the surface of these core–shell structures. The results show that the adsorption of O and CO is more favourable on Ni/Pd core–shell catalysts compared to the pure Ni surface. As the dissociation of the O₂ molecule into atomic oxygen and CO oxidation are key steps in metal-catalysed oxidation reactions, we have examined the energetics of O₂ dissociation and CO oxidation reaction over the (111) faces of Ni as well as Ni/Pd structures. Our results suggest that both adsorption and dissociation are easier on Ni/Pd surfaces compared to a simple Ni surface. Unlike O₂ dissociation, we find that CO oxidation is unfavourable on Ni/Pd in comparison to Ni. The energetics of both reactions follow Brønsted–Evans–Polanyi relationships where the activation energy is linearly related to the reaction energy for all surfaces studied here. We found that a single monolayer of Ni on Pd, due to the synergistic effect of geometric and electronic factors, is the most active among the surfaces studied here towards the adsorption and dissociation of O₂. Both adsorption and dissociation become less favourable with an increase in the thickness of the Ni shell in these core–shell catalysts. A close analysis of the results indicates that both strain and ligand effects are active in the improved catalytic activity seen in Ni on Pd catalysts. Quite understandably, the ligand effect is only seen for the single monolayer of Ni on Pd and fades off as we go to two monolayers of Ni. The results reported here help us understand the connections between the electronic structure and catalytic activity of Ni/Pd core–shell nanoparticles, and these insights are expected to be useful in the development of core–shell catalysts.