The catalytic system containing Pd(OAc)(2) and peroxo-heteropoly compound [(C6H13)(4)N](3){PO4[W(O)(O-2)(2)](4)} (denoted by THA-PW4) in methanol showed 81.6% selectivity for propylene oxide at a propylene conversion of 42.7% using molecular oxygen as an oxidant in an autoclave reactor at 373 K for 6 h, whereas, Pd(OAc)2 or THA-PW4 alone showed low conversions. The catalytic system containing Pd(OAc)(2) and THA-PW4 in methanol is reusable for propylene oxidation by means of vacuum distillation after reaction. XRD patterns and Pd K-edge EXAFS indicate that Pd-0 species formed by the reduction of Pd(OAc)(2) with methanol acts as an active species in propylene epoxidation with molecular oxygen. FF-IR spectra of Pd-THA-PW4 before and after reaction proved that the peroxy oxygen bonds of THA-PW4 could be regenerated in methanol medium by molecular oxygen in the presence of Pd, but could not be regenerated in acetonitrile medium. It is likely that methanol molecule reacts with oxygen molecule over Pd-0 species to form a peroxy intermediate HOCH2OOH, which regenerates the peroxy oxygen bonds of THA-PW4 and achieves catalytic turnover for propylene epoxidation. Because the peroxy intermediate HOCH2OOH is not stable and finally decompose to CO2 and H2O, a part of methanol is co-oxidized. Moreover, hydrogen peroxide also probably formed in situ in the catalytic system during the reaction and plays an important role to regenerate the peroxy oxygen bonds of THA-PW4. © 2004 Elsevier B.V. All rights reserved.