Reduction of NO by methane in the presence of excess oxygen (NO-CH4-O-2 reaction) catalyzed by four Pd/H-ZSM-5 catalysts having very different states of Pd thigh or low dispersion ((A) or (B)); and preoxidized or prereduced (O or R)), was investigated, focusing on the relationships between the states of Pd and the catalytic performance. Pd/Na-ZSM-5 was also studied for comparison. The states of Pd (dispersion, distribution, and oxidation state) were characterized by X-ray diffraction (XRD), X-ray photoelectron spectroscopy (XPS), TEM, and NaCl titration before the reaction and after 10 min, and 4 and 14 h of the NO-CH4-O-2 reaction at 673 K and GHSV = 90,000 h(-1). Except for the initial variation in 1-2 h, the differences in the catalytic performances as well as their variation with reaction time very well corresponded with the differences and variation of the state of Pd. For example, preoxidized Pd/H-ZSM-5(A), of which Pd atoms were mostly in the isolated Pd2+ state and distributed almost uniformly in the zeolite particle, showed a high activity for NO reduction from the beginning and rapidly reached steady state. On prereduced Pd/H-ZSM-5(A), Pd was initially in highly dispersed metallic state but oxidized very quickly in the NO-CH4-O-2 stream and after that the state of Pd and the catalytic performance exhibited a similar behavior as the preoxidized Pd/H-ZSM-5(A). Pd/H-ZSM-5(B), preoxidized and prereduced, had initially large PdO and Pd-0 particles (140-160 Angstrom) on the external surface, respectively, which were dispersed gradually into the micropores as isolated Pd2+. The oxidation of PdO was very fast. The catalytic performance changed correspondingly; from low to high activity for NO reduction and from high to low activity for CH4 oxidation. In the steady state at 673 K, all four catalysts showed the same high activity for NO reduction and modest activity for CH4 oxidation, corresponding to the same state of Pd. On preoxidized Pd/Na-ZSM-5, which showed a low activity for NO reduction, Pd atoms were mainly in the form of PdO particles (170 PI) on the external surface, and they changed little during the reaction. These results clearly demonstrate that isolated Pd2+ ions in the zeolite micropore are active and selective for NO reduction, and PdO particles on the external surface are active mainly for CH4 oxidation. These conclusions are consistent with the results in the literature and our earlier work.