The direct C(sp2)-H hydroxylation of 2-arylpyridines catalyzed by normal palladium catalysts via interception of aldehyde autoxidation possesses a number of advantages, including convenient operating conditions, nontoxic and inexpensive aldehydes, and being economical in terms of steps and atoms. In this paper, we report a computational study of the mechanism of this catalytic process using density functional theory, revealing a novel catalytic cycle. We find that the rate-limiting step is C-H bond activation that occurs via a concerted metalation deprotonation mechanism, which is consistent with Guin's experimental kinetic isotope effect observations. The byproduct of the C-H bond activation, Bronsted acid HCl, promotes formation of a hexacoordinated Pd(III)-peracid intermediate. It provides a reservoir for the robust high-valent Pd(IV)-OH species via an easy O-O homolysis. The pathway that does not involve HCl is also energetically feasible but albeit less probable. Furthermore, the involvement of another radical OOH center dot, besides the acylperoxo radical nPrOO(center dot), is needed to recover the tetracoordinated Pd(II) catalyst during the catalytic cycle. Our computational work sheds lights on the elusive oxygenation involving a radical that is mediated by palladium catalysts and will play a positive role in the further design of a rational reaction strategy and new catalysts.