The combination of techniques including switching experiments, temperature programed reduction and in situ neutron scattering-conductivity are used to investigate the sensing mechanism of 1% Pd/SnO2 toward hydrogen-containing gas mixtures. In particular, the use of the in situ neutron scattering-conductivity for the first time allows the simultaneous monitoring of electrical conductivity and inelastic neutron scattering spectra of the sensor material. Direct evidence is obtained on a reversible migration of hydrogenic species from and to the metal and the underlying tin oxide surface, i.e., reversible hydrogen spillover. As a result of this spillover, a dramatic change in electrical conductivity of the Pd doped tin oxide material is observed. We confirm, in accordance with the known mechanism, that the change of conductivity is based upon the creation or destruction of negatively charged adsorbed oxygen species on the sensor surface. In addition, we report a new but important sensing mechanism, the spillover hydrogen species behaving like a shallow donor to the semiconductor oxide as the direct source of conductivity occurs concurrently with the known mechanism.