Aluminum nitride (AlN) with a combination of very high thermal conductivity and excellent electrical insulation properties exhibits wide applications. However, it is quite sensitive to a moist environment and hydrolyzes slowly in water. In this work, density functional theory was adopted to examine the atomistic reaction mechanism on the wurtzite AlN(0001) surface. The results indicate that water molecules are preferentially adsorbed at the top site of the AlN(0001) surface. The decomposition of adsorbed H ₂ O into OH and H on the AlN(0001) surface occurs spontaneously without any energy barrier. However, a further dissociation reaction of OH into O and H has an energy barrier of 22.046 kcal/mol. The dissociation of H ₂ O is strongly dependent on the H ₂ O coverage when more water molecules are adsorbed. Ammonia (NH ₃ ) is determined as the dominant gas product at 4/9 monolayer H ₂ O coverage, which will induce N vacancy (V _N ) formation in AlN ceramic. The V _N will be occupied by O ^2- after geometry optimization and plays an acceleration role in the degradation of AlN by water. H ₂ O adsorption and the formation of NH ₃ occur alternately with the H ₂ O coverage increasing. An OH-Al-O layer is formed as a precursor of AlOOH after the first AlN bilayer is fully degraded. This work can guide the manufacture and application of AlN from the theoretical viewpoint.