Despite its importance, it is still not known by which mechanism Li-doped MgO catalyzes the oxidative coupling of methane to ethane. Nevertheless, it is commonly assumed that the mechanism goes through catalytic H abstraction from methane via a Li+O– surface defect. In this paper we use first-principles density functional theory calculations to show that the reaction is significantly more exothermic when the Li+O– defect is situated on a step edge instead of on the flat surface. We find that the reaction on the step is exothermic by 0.25 eV, whereas it is endothermic by 0.3 eV on the flat surface. The presence of the Li dopant in the step edge is crucial for the exothermicity of the reaction. These findings suggest that surface steps which include lithium defects could be responsible for the catalytic behavior of Li/MgO. Following the binding of hydrogen to the Li+O– defect on the step edge the methyl radical can either depart to the gas phase or bind to an adjacent step-edge oxygen atom, increasing the exothermicity of the overall process to 0.8 eV. Activation energies of 0.2 eV for the first pathway and 0.5–0.8 eV for the second were calculated.