The effect of coexisting H2O on the catalytic activity of In2O3-Al2O3 prepared by the sol-gel method for NO reduction by propene in the presence of oxygen was studied. No activity depression due to coexisting H2O was observed for In2O3-Al2O3 with an In2O3 loading of more than 5 wt.%, although the catalysts with a lower In2O3 loading (similar to3 wt.%) showed an inhibition effect by H2O. X-ray diffraction (XRD) and X-ray absorption spectroscopy (XANES) revealed the presence of small In2O3 crystallites and relatively large In2O3 particles in the catalysts with lower (similar to3 wt.%) and higher (5 wt.%) In2O3 loadings, respectively. A high H2O tolerance of In2O3-Al2O3 with higher In2O3 loadings of more than 5 wt.% was considered to be due to the presence of the relatively large In2O3 particles interacting with Al2O3. The results of kinetic studies and in situ diffuse reflectance Fourier transform infrared (FT-IR) experiments showed that coexisting H2O suppresses the formation of and/or promotes the desorption of formate and NO3- surface species. The present effect of coexisting H2O was interpreted by the compensation of the following two opposite effects: the removal of the formate species as a spectator species and the promotion of the hydrolysis of the -NCO species (positive effect), and the inhibition of the formation of NO3- species as the initial intermediate (negative effect).