Using a photoemission spectroscometer that operates close to ambient conditions of pressure and temperature we have determined the Pd-O phase diagram and the kinetic parameters of phase transformations. We found that on the (111) surface oxidation proceeds by formation of stable and metastable structures. As the chemical potential of O-2 increases chemisorbed oxygen forms followed by a thin surface oxide. Bulk oxidation is a two-step process that starts with the metastable growth of the surface oxide into the bulk, followed by a first-order transformation to PdO.