We present Smoothed Particle Hydrodynamics ( SPH ) simulations of molecular cloud formation in spiral galaxies . These simulations model the response of a non-self-gravitating gaseous disk to a galactic potential . The spiral shock induces high densities in the gas , and considerable structure in the spiral arms , which we identify as molecular clouds . We regard the formation of these structures as due to the dynamics of clumpy shocks , which perturb the flow of gas through the spiral arms . In addition , the spiral shocks induce a large velocity dispersion in the spiral arms , comparable with the magnitude of the velocity dispersion observed in molecular clouds . We estimate the formation of molecular hydrogen , by post-processing our results and assuming the gas is isothermal . Provided the gas is cold ( T \leq 100 K ) , the gas is compressed sufficiently in the spiral shock for molecular hydrogen formation to occur in the dense spiral arm clumps . These molecular clouds are largely confined to the spiral arms , since most molecular gas is photodissociated to atomic hydrogen upon leaving the arms .