The catalytic activities of two palladium complexes with water soluble phosphine PNS (PNS = Ph2PCH2CH2C(O)NHC(CH3)(2) CH2SO3Li) (I) and phosphite P(OPh)(3) (II) were tested in the carbonylation, of benzyl bromide in methanol at 40-50 degreesC and 1 atm of CO. The first catalyst, (I), was formed in situ from PdCl2(cod) and PNS, the second one, (II), was based on the PdCl2(P(OPh)(3))(2) complex. At the ratio of [NEt3]: [PhCH2Br] equal to 2.5 the yields of phenylacetic acid methyl ester were 83-86% in the carbonylation with PNS and 100% in the carbonylation with P(OPh)(3). The palladium catalyst with P(OPh)(3) produced under the same conditions 70% of phenylacetic acid methyl ester in the carbonylation of benzyl chloride and 60% of 2-methylphenylacetic acid methyl ester in the carbonylation of 1-bromoethylbenzene. The lower rate of carbonylation of 1-bromoethylbenzyl bromide in comparison to that of benzyl bromide was explained by the lower rate of the substrate oxidative addition step leading to palladium benzyl complexes. Two palladium benzyl complexes, cis-PdBr(PhCH2)(P(OPh)(3))(2) and trans-PdBr(PhCH(Me))(P(OPh)(3))(2) have been isolated and characterized (X-ray, P-31 and H-1 NMR).