Pd/ZrO2 prepared from oxidation of glassy Pd-Zr alloys was found to disproportionate carbon monoxide already at about 370 K. The studies which involved thermal analysis (DTA, TG) combined with mass spectroscopy and X-ray diffraction showed that interaction of CO with Pd/ZrO2 leads to its disproportionation followed by incorporation of carbon into the palladium lattice. The interstitial solid solution of carbon in palladium with a maximal carbon content of 15 atom % begins to form at about 450 K. This solution is stable under a CO atmosphere up to about 670 K; at higher temperatures it decomposes to elemental Pd and carbon. The carbon placed in the interstitial positions of the palladium lattice is very reactive and is oxidized with oxygen to CO2 at temperatures as low as 350 K. The interstitial carbon reacts with hydrogen to form methane at about 400 K.