Abstract Quantitative analysis of poisonous Pd hydroxide phase formation during methane combustion in the presence of water is performed via in situ X‐ray absorption spectroscopy from 200 to 500 deg C for palladium catalysts supported on tin and aluminum oxides. Water presence inhibits oxidation of the metallic Pd; for the Pd/Al 2 O 3 catalyst the major oxidation product is Pd(OH) 2 , with PdO being the dominant phase on the Pd/SnO 2 system. Tin dioxide is reduced during methane oxidation in the presence of water, regardless of the excess oxygen in the feed. Temperature‐programmed surface reactions at anaerobic and low‐oxygen conditions revealed that the Pd/SnO 2 catalyst has an inability to catalyze methane steam reforming, as opposed to Pd/Al 2 O 3 . We suggest that tin oxide extracts hydroxyls from the PdO surface, which makes the latter more active in methane combustion in the presence of water but inactive in methane steam reforming.