Ultrafine palladium particles supported on cerium oxide by the coprecipitation method effectively catalyzes the methanol synthesis from carbon monoxide and hydrogen, while the catalytic activity increases in the initial stage. The Pd K-edge EXAFS (extended X-ray absorption fine structure) of the catalyst shows that a small part of palladium is still oxidized after the pretreatment with hydrogen at 573 K for 1 h. During the reaction the palladium particles in the catalyst are further oxidized due to the formation of Pd-O-Ce bonding which may stabilize the cationic palladium species being active to the reaction.