(Sp)PdCl2 [Sp = (-)-sparteine] catalyzes a number of different aerobic oxidation reactions, and reaction of O-2 with a Pd-II-hydride intermediate, (Sp)Pd(H)Cl (1), is a key step in the proposed catalytic mechanism. Previous computational studies suggest that O-2 inserts into the Pd-II-H bond, initiated by abstraction of the hydrogen atom by O-2. Experimental and computational results obtained in the present study challenge this conclusion. Oxygenation of in-situ-generated (Sp)Pd(H)Cl exhibits a zero-order dependence on [O-2]. This result is inconsistent with a bimolecular H-atom-abstraction pathway, and DFT computational studies identify a novel "reductive elimination" mechanism, in which the chelating nitrogen ligand undergoes intramolecular deprotonation of the Pd-II-hydride. The relevance of this mechanism to other Pd-II oxidation catalysts with chelating nitrogen ligands is evaluated.