Step-response studies of propylene partial oxidation with oxygen over a hydrophobic Pd/SDB catalyst were conducted at 1000 kPa and 185 degreesC in a fixed-bed reactor. CO2 was found to be the only oxidation product when the feed contained only propylene and oxygen. CO2 formation was significantly suppressed by addition of steam to the feed, and this addition leads to the formation of partial oxidation products: acrolein and acrylic acid. A competitive reaction mechanism involving water molecules is proposed to explain the significant influence of steam concentration on the rate of propylene oxidation and product selectivity.