Methanol synthesis from CO2 hydrogenation on a model Pd/In2O3 catalyst, i.e. Pd-4/In2O3, has been investigated using density functional theory (DFT) and microkinetic modeling. Three possible routes in the reaction network of CO2 + H-2 -> CH3OH + H2O have been examined. Our DFT results show that the HCOO route competes with the RWGS route whereas a high activation barrier blocked the HCOOH route kinetically. The DFT results also suggest that H2COO* + H* <-> H2CO* + OH* and cis-COOH* + H* <-> CO* + H2O* are the rate-limiting steps in the HCOO route and the RWGS route, respectively. Microkinetic modeling results demonstrate that the HCOO route is the dominant pathway for forming methanol from CO2 hydrogenation. Furthermore, the activation of the H adatom on the Pd cluster and the presence of H2O on the In2O3 substrate play important roles in promoting methanol production. The hydroxyl adsorbed at the interface of Pd-4/In2O3 induces structural transformation of the supported Pd-4 cluster from a butterfly shape into a tetrahedron one. This structural change not only indicates the dynamical nature of the supported nanocatalysts during the reaction but also causes the final hydrogenation step to change from CH3O to H2COH.