The effect of high temperature reduction (HTR) in hydrogen (up to 1180 K) on the microstructure of 9 wt-% Pd/CeO2 catalyst was studied by HRTEM and XRD methods. Reduction of the catalyst at or above 973 K caused severe recrystallization of CeO2 and Pd with simultaneous strong interaction between the two components appearing as three phenomena : epitaxial growth of small Pd particles on CeO2 (most frequently with [111]Pd[111]CeO2); decoration of large Pd particles with ordered CeO2 overlayer and expansion of the lattice parameter of Pd (by 2.1%). The origin of the Pd lattice expansion is discussed and diffusion of Ce species into the Pd lattice seems to be the most probable one. HTR caused also phase transformations in the ceria support. At 973 K and 1100 K, whole CeO2 was transformed into oxygen deficient CeOx phase exhibiting the same or similar structure but with expanded lattice parameter (by 2.8%). At 1180 K most ceria was transformed into hexagonal A-Ce2O3. The CeOx phase appeared to be stable in hydrogen and in vacuum at room temperature, but upon exposure to air at room temperature it rapidly reoxidised to CeO2. Ce2O3 also reoxidised to CeO2 but much slower. Another consequence of HTR at or above 773 K was formation of pits in CeO2 crystallites, mainly on (112)-type crystal faces. The pits (1-10 nm) exhibited well defined walls parallel to CeO2 lattice fringes and they could possibly constitute nucleation sites for strongly bonded, epitaxial oriented Pd particles.