Palladium-modified carbon ceramic composite gas electrodes (Pd/CCE) are presented and characterized. The electrodes are comprised of graphite powder percolating through hydrophobically modified silica xerogels. The electrodes were prepared by mixing Pd salt and carbon powder with the sol-gel precursors and reduction of palladium ions after xerogel formation. The morphology and surface characteristics of the composite materials were examined by electron microscopy, X-ray microanalysis, nitrogen adsorption and water wetting angle measurements. Oxygen reduction was used as a model reaction to probe the characteristics of the wetted section of the Pd/CCEs. Voltammetric studies and polarization curves were employed to elucidate the size and structure of the active layer as a function of palladium content.