The effect of the temperature of reduction on the activity and selectivity of a Pd-CeO2 catalyst was studied for the hydrogenation of CO and CO2. A drastic decrease in the overall conversions of carbon oxides and a significant modification in the product selectivity were observed when the catalyst was reduced at 773 K. The main reason for the decrease in the overall catalytic activity was the occurrence of severe sintering of palladium particles during high temperature reduction, evidenced by extended X-ray absorption fine structure (EXAFS) and X-ray diffraction (XRD) measurements. The remarkable changes in the selectivities of the products were explained by the decoration phenomenon of palladium surface by reduced ceria species due to the phase change between CeO2 and Ce2O3 upon reduction at 773 K.