Palladium catalysts supported by gamma-Al2O3 and MgO/gamma-Al2O3 composites were prepared by conventional impregnation and double impregnation. Methane combustion and methane pulse reactions were tested on the supports and catalysts. It was found that composites of MgO/gamma-Al2O3 not only had a certain catalytic effect but also modified the activity of the supported palladium catalysts. The function of MgO changed with its amount in the composite and the valence state of palladium. Lattice oxygen in the composite was found to take part in the oxidative reaction and considered as a major factor in influencing the activity of catalysts. The structure and physico-chemical properties of the composite supports were also a possible affecting factor. XRD results and the specific surface area of the supports after high temperature calcination show that introduction of MgO into gamma-Al2O3 can enhance the thermal stability of the support to some extent.