Electronic structure of the palladium monoxide and its interaction with a methane molecule has been investigated by means of density functional theory The two triplets, (3) Pi and (3) Sigma(-), lie very dose in energy, with the indication at the (3) Pi ground state of the oxide. A methane molecule interacts with the open shell PdO and forms two stable adsorption complexes : in collinear on palladium and bridging conformations. The scission of the C-H bond in adsorbed methane requires moderate activation energy of 24.5 kcal/mol and the dissociation product is very stable, however, the singlet-triplet crossing occurs at the transition state.