Gradient-corrected density functional theory has been used to study substituents effects on the cationic N<^>N-Pd(II) diimine catalyst in ethene and propene polymerization. Here N<^>N = -C(R)-N(Ar)-N(Ar)-C(R)- with R = H, -CH3, -An and Ar = H, C6H5, -2,6-C6H3- (Me)(2), -2,6-C6H3(Pr-i)(2). Calculations have been performed on the [N<^>N-Pd(II)-P](+) (P = n-propyl and isopropyl) alkyl complexes (1) and the corresponding [N<^>N-Pd(II)-P(eta(2)-CH2CHR0)](+) pi-complexes of ethene (R-0 = H) and propene (R-0 = CH3), as well as the ethene and propene (1,2- and 2,1-) insertion transition states. The results show that an increase in the size of the substituents on the Pd(II) catalyst enhances the preference of 1 for the isomer with the branched isopropyl alkyl group P, while for the olefin complexes [N<^>N-Pd(II)-P(eta(2)CH(2)CHR(0))](+) the isomer with the linear n-propyl group P becomes preferred. Further, an increase in the size of the substituents affects the relative binding of ethene and propene. Thus, the electronic preference of propane complexes is overridden by steric factors in the case of the largest substituents. The regioselectivity of propene insertion is strongly affected as well: an increase in steric demand decreases the 2,1-:1,2-insertion ratio, with 1,2-insertion becoming favored for the sterically most congested catalyst [R = -CH3, Ar = -2,6-C6H3(Pr-i)(2)].