A palladium oxide on alumina oxidation catalyst was employed to remove combustible pollutants from the exhaust of a spark-ignited, lean-burn natural gas engine. Rapid deactivation was seen for the oxidation of methane and ethane. Characterization results are consistent with sulfur as the primary source of catalyst activity loss. In microreactor studies, deactivation of the engine aged catalysts was only apparent if water was present in the feed stream. In dry feed gas, the activity of fresh and engine aged samples was the same. SO2 in dry gas was shown to cause both inhibition and deactivation for methane oxidation. This deactivation is partly reversible at 733 K and completely reversible at 793 K. Water inhibits the rate of methane oxidation and causes some permanent activity loss. Activity studies at 733 and 793 K indicate that activity loss is greater when both water and SO2 are present. Sulfur oxide groups on the surface increase both the amount of water sorbed and the water desorption temperature in TPD experiments. It is proposed that water and SO2 compete for adsorption sites on the alumina surface. Enhanced activity loss in the presence of both poisons is attributed to enhanced water inhibition and spillover of sorbed SO2 and SO3 species from alumina to the PdO surface.