Perovskite BaCeO3 materials with low levels of substitution of Pd(II) on the Ce site and a corresponding number of oxygen vacancies were prepared by a high-temperature synthesis method. Although their surface areas are low (ca. 1.0 m(2) g(-1)), their low-temperature (<200 degrees C activity for CO oxidation is comparable to that of highly dispersed PdO/Al2O3. When the doped perovskites are reduced extensively in H-2, causing extrusion of Pd(0) from the lattice, their catalytic activity declines dramatically. Consequently, activity is attributed to the presence of cationic Pd(II) in the perovskite lattice. Density functional theory was used to investigate the atomic and electronic character of the structures containing oxygen vacancies. Both experimental and theoretical evidence support a catalytic mechanism involving labilization of lattice and surface oxygen by cationic Pd(II). (C) 2007 Elsevier Inc. All rights reserved.