X-ray diffraction showed that during high temperature reduction at 600 degrees C, chlorine-free Pd/gamma-Al2O3 undergoes partial transformation to a Pd-Al alloy, which confirms results of other studies [9]. This evolution appears to have a large effect on the catalytic behaviour in the reaction of neopentane with hydrogen : the selectivity towards isomerization increases from <20 up to similar to 80%. At the same time, the activation energy drops from similar to 60 to similar to 22 kcal/mol. These changes can be reversed by oxidation at 500 degrees C followed by reduction at 300 degrees C. The presence of residual chlorine (ex-PdCl2 precursor) appears to inhibit the Pd induced reduction of Al2O3 leading to Pd-Al alloy formation.