The selectivity for CO methanation is a decisive aspect for the practical application of the methanation reaction for the removal of CO from CO2-rich H-2 fuel gases produced via hydrocarbon reforming. We show that increasing the water content in the feed gas, up to technically relevant levels of 30%, significantly increases the selectivity of supported Ru catalysts compared with operation in (almost) dry gas, while in operando EXAFS measurements reveal a gradual decrease in the Ru particle size with increasing amounts of water in the gas feed. Consequences of these findings and related IR spectroscopic data for the mechanistic understanding and practical applications are outlined.