Direct synthesis of H2O2 from H-2 and O-2 is an environmentally benign and atom economic process and as such is the ideal pathway in catalysis. However, currently no low-cost pathway of this kind of catalysis exists, although it would be an attractive alternative strategy to the common industrial anthraquinone method for H2O2 production. Metal-based catalysts are widely employed in such a direct synthesis process but often need to be oxidized, alloyed, or supplied with additives to make them selective. To understand the metal-oxidation state in heterogeneous catalysis, we studied the selective oxidation of hydrogen by molecular oxygen on Pd(111) and PdO(101) surfaces, leading to either H2O2 or H2O products. Our results demonstrate, for the first time, that the oxidized PdO(101) surface clearly shows better performance and selectivity, as compared to the reduced Pd(111) one. The activation barrier on the oxidized Pd surface is ca. 0.2 eV lower than the one on the reduced Pd surface. On the oxidized surface, the H2O2 synthesis route is preferred, while, on the reduced surface, the H2O route is predominant. The decomposition of H2O2 is also greatly inhibited on the oxidized surface. We analyzed the different pathways in detail through thermochemical cycles, which establishes that the oxidized surface shows weaker adsorption ability toward the reagents O-2 and H-2, the key intermediate OOH, and also the product H2O2 in comparison with the Pd(111) surface, which we believe affect the selectivity. The work presented here clearly shows that the oxidation state of metal surfaces is one of the most important factors that tunes the catalysis of a chemical reaction and can affect the selectivity and reaction patterns dramatically.