Propane oxidation was studied on a Pd-supported Al2O3 catalyst promoted by ceria, when this ceria was first grafted as a monolayer over alumina. The reaction proceeded under different feed conditions, and the surface sites were identified by X-ray photoelectron spectroscopy (XPS) in a pretreatment chamber and then compared to temperature-programmed desorption, temperature-programmed surface reaction (TPSR), and catalytic results, in the presence and absence of water. Stable catalyst performance was achieved in experiments after 20 h with time on stream, to get reliable data for further interpretation. This observation is true for all reaction conditions, with reducing, stoichiometric, or excess oxygen content in the reaction feed. The Pd/CeO2/Al2O3 catalyst is less active for oxidation at low temperatures but suddenly becomes very active at high temperatures. However, in the case of the latter, large quantities of H-2 were released, which suggests a drastic change in selectivity. TPSR results showed that the presence of CeO2 affected the oxidation, inhibiting the reaction as well as the re-forming in the first domain. But the combination of both was beneficial in terms of higher H-2 production. XPS results showed that the catalysts containing CeO2 form the highest oxidation state palladium species, probably PdO2 (338 eV), after the oxidation of propane. From these results it is suggested that besides the Pd-0/PdO interface, which are active sites for propane oxidation, the Pd-0/PdO2 sites also favor the selective oxidation toward re-forming.