Many attempts have been made to control the regioselectivity for olefin poly- merization by varying the structures of ligands in catalysts. The regioselectivity of propylene polymerization was investigated by replacing a nitrogen atom in the Pd(II) diimine catalyst with an oxygen atom from density functional theory method at the B3LYP/LANL2DZ level. The results show that the 1,2-insertion becomes a rival mechanism to the 2,1-insertion when the nitrogen atom is replaced by the oxygen atom leading to an asymmetric environment in the catalyst, and that the steric effect in the asymmetrical catalyst plays an important part in the polymerization. The insertion barrier from 2-O is much higher than that from 2-N. A pyramid transition state was characterized for the catalyst to convert 2-O back to 2-N through internal rotation. The propylene prefers to coordinate at the opposite side of O in the catalyst. This is the driving force for the internal rotation. The results are significant for isotactic and syndiotactic polymerization.