Various molecular species are known to form during the photoreaction of C2H4I2 in the gas phase and in solution. We have studied all species involved in this reaction by ab initio and density functional theory (DFT) calculations: Geometries, energies, and vibrational frequencies of C2H4I2, bridged C2H4I*, anti C2H4I*, C4H4, I2, I3-, and the isomer C2H4I-I were calculated. The absorption peaks and oscillator strengths of selected species along the potential energy surface (PES) were calculated using time-dependent DFT and were compared with available experimental results. The calculated PES satisfactorily describes the observed reactions of the photoexcited C2H4I2 molecule. In the gas phase, there is only one reaction pathway: the first C-I bond ruptures followed by a secondary C-I breakage in the haloethyl radical C2H4I*. In solution, by contrast, another reaction channel, which is energetically more favored over the secondary dissociation, is switched on due to a solvation effect: the bridged C2H4I* can bind to the free iodine atom to form a C2H4I-I isomer without any energy barrier. The isomer can then break into C2H4 and I2. The rotational barriers in the gas phase and in solution were also calculated and compared. To provide experimental data on the structure of C2H4I2 in solution, the ground state structure of C2H4I2 in methanol was determined from static X-ray diffraction data using 88 keV (lambda = 0.14 A) X-rays. The structural parameters are compared with those from the theoretical results.