Pd/Al2O3 and Pd/CeO2 catalysts were investigated for methane oxidation at conditions typical for the exhaust of lean burn gas engines. The results show that catalyst prereduction significantly increases the catalytic activity during the light-off irrespective of the gas composition. Operando X-ray absorption spectroscopy revealed a fully reduced catalyst state after the reductive pretreatment, which is reoxidized with increasing temperature in a lean reaction mixture, resulting in bulk PdO formation at 350 degrees C. The correlation of catalytic activity with oxidation state during light-off tests led to the conclusion that PdO is a mandatory species for methane oxidation. We attribute the increased conversion after prereduction to the slight sintering of Pd particles and higher reactivity of the formed PdO surface species. Additionally, the H2O inhibition effect was found to be retarded under dry conditions due to the relatively slow palladium reoxidation. The results presented are in particular relevant for the activity of methane oxidation catalysts at low temperature and under dynamic conditions.