Methanol decomposition and oxidation on Pd(111) at millibar pressure were studied by in situ polarization-modulation infrared reflection absorption spectroscopy (PM-IRAS), on-line gas chromatography and pre-and postreaction X-ray photoelectron spectroscopy (XPS). Various dehydrogenation products such as methoxy CH3O, formaldehyde CH2O, formyl CHO, and CO could be spectroscopically identified. Methanol oxidation proceeds via dehydrogenation to formaldehyde CH2O, which either desorbs or is further dehydrogenated to CO, which is subsequently oxidized to CO2. Carbonaceous overlayers that are present during the reaction may favorably affect the selectivity toward CH2O. The reaction takes place on metallic Pd, and no indications of an involvement of Pd surface oxide were observed.