Highly dispersed Pd nanoparticles were prepared by borohydride reduction of Pd(acac)2 in 1,2-propanediol at an elevated temperature. They were uniformly dispersed on carbon black without significant aggregation. X-ray diffraction showed that carbons from the Pd precursor dissolved in Pd, increasing its lattice parameter. A modified reduction process was tested to remove the carbon impurities. Carbon removal greatly enhanced catalytic activity toward the oxygen reduction reaction. It also generated an inconsistency between the electronic modifications obtained from X-ray photoelectron spectroscopy and the electrochemical method. CO displacement measurements showed that the formation of Pd-C bonds decreased the work function of the surface Pd atoms.