Pd/MFI catalysts with a Pd/Al ratio similar to 1.0 were prepared by subliming PdCl2 in a Cl-2-rich flow onto a H/MFI zeolite. Initially, [PdCl](+) ions are formed in cation exchange positions; after hydrolysis they are converted to oxo-ions, possibly [Pd-O-Pd](2+). Virtually no protons are formed in this step; all positive charge is localized on Pd entities. In contrast, neutral PdO particles, mainly located at the external surface, predominate in calcined Pd/MFI that is prepared by ion exchange from aqueous solution. The reduction of NO with methane to N-2 over the Pd/MFI catalysts does not require intermediate oxidation to NO2; on the contrary, O-2 lowers the reaction rate. PdO particles catalyze the nonselective oxidation of methane to CO2. Under steady-state conditions a dynamic equilibrium appears to exist between various forms of Pd, including clusters of metallic palladium. These are the sites where methane is dissociatively chemisorbed. By consequence, the catalytic activity of prereduced catalysts for NO reduction is initially much higher than that of preoxidized or steady-state catalysts. To detect the presence of a finite amount of metallic Pd under steady-state conditions, H/D exchange between CH4 and D-2 was used as a catalytic probe. Formation of CH3D has been identified with an oxygen-rich NO/ O-2/CH4/D-2 feed of even O-2/D-2 = 20.