The correlation between the occurrence state of surface Pd species of Pd/CeO2 for lean CH4 combustion is investigated. Herein, by using a reduction-deposition method, we have synthesized a highly active 0.5% PdO/CeO2-RE catalyst, in which the Pd nanoparticles are evenly dispersed on the CeO2 nanorods CeO2-R. Based on comprehensive characterization, we have revealed that the uniformly dispersed Pd nanoparticles with a particle size distribution of 2.3 ± 0.6 nm are responsible for the generation of PdO and PdxCe1−xO2−δ phase with –Pd2+–O2−–Ce4+– linkage, which can easily provide oxygen vacancies and facilitate the transfer of reactive oxygen species between the CeO2-R and Pd species. As a consequence, the remarkable catalytic activity of 0.5% Pd/CeO2-RE is related to the high concentration of PdO species on the surface of the catalyst and the synergistic interaction between the Pd species and the CeO2 nanorod.