The catalytic combustion of methane over palladium/zirconia catalyst prepared by oxidation and subsequent reduction of Pd/Zr glassy metals has been investigated with special emphasis on the influence of the catalyst structure (particle size and specific surface area) on the catalytic performance and the impact of a redox mechanism on the product formation. The reaction of 1% methane and 4% oxygen (balance of He) in a fixed-bed microreactor was found to be strongly dependent on the particle size of palladium, which was controlled by appropriate reduction before catalytic testing. Pre-reduction of PdO resulted in an enhanced activity compared to the unreduced catalysts. The structural changes induced upon reduction were accompanied by altered physico-chemical properties, evidenced by different behaviors in the decomposition of PdO and the reduction of PdO by methane. The correlation established between catalytic performance and the rate of reduction of PdO by methane led to the postulation of a redox mechanism, involving the reaction of methane with the active palladium oxide phase and subsequent reoxidation of metallic Pd by oxygen, which was independently confirmed by the use of O-18 labeled catalysts and pulse methods.