We have investigated the adsorption of oxygen on PdAg(111) alloy surfaces with varying composition, at different coverages and in different adsorption site configurations using density functional theory. In contrast to pure Pd and Ag(111) surfaces we found that adsorption of oxygen on some hcp sites could be more stable than or energetically equivalent to adsorption on other fcc sites on the same surface depending on the detailed site composition. We discuss our findings in the context of alloy segregation in reactive environments and the relationship of the surface composition to the adsorbate phase behavior.