Ag/Si(111) heterojunction having ∼25% lattice mismatch can be formed by placing four surface unit cells of Ag(111) on three surface unit cells of Si(111), thereby reducing the effective strain in the Ag film to ∼0.3% in this coincidence site epitaxial growth. We have carried out first-principles investigation of such Ag/Si(111) interface to establish the interplay between the structural and electronic properties. While the Ag overlayer affects the reconstruction of the Si(111) surface, we find that the geometrical relaxation of the Ag atoms is influenced by the sub-surface Si-layer and the concomitant lattice mismatch. The electronic density of states show some oscillations near the Fermi energy, which have been compared with the scanning tunnelling spectroscopic (STS) experimental data. The signature of metal-induced gap states (MIGS) for this metal–semiconductor heterojunction has been established from the evolution of localized gap states in the layer projected density of states. Our DFT estimated work function values for Ag(100), (110) and (111) have an excellent agreement with the available experimental results. Also, the p-type Schottky barrier height (SBH) of this rectifying Ag/Si contact has been calculated from the Kohn–Sham estimates of EF − Ev modified by the interface induced dipole.