Catalysts　based　on　palladium　are　among　the　most　effective　in　the　complete　oxidation　of　methane.　Despite　extensive　studies　and　notable　advances,　the　nature　of　their　catalytically　active　species　and　conceivable　structural　dynamics　remains　only　partially　understood.　Here,　we　combine　operando　transmission　electron　microscopy　(TEM)　with　near-ambient　pressure　X-ray　photoelectron　spectroscopy　(NAP-XPS)　and　density　functional　theory　(DFT)　calculations　to　investigate　the　active　state　and　catalytic　function　of　Pd　nanoparticles　(NPs)　under　methane　oxidation　conditions.　We　show　that　the　particle　size,　phase　composition　and　dynamics　respond　appreciably　to　changes　in　the　gas-phase　chemical　potential.　In　combination　with　mass　spectrometry　(MS)　conducted　simultaneously　with　in　situ　observations,　we　uncover　that　the　catalytically　active　state　exhibits　phase　coexistence　and　oscillatory　phase　transitions　between　Pd　and　PdO.　Aided　by　DFT　calculations,　we　provide　a　rationale　for　the　observed　redox　dynamics　and　demonstrate　that　the　emergence　of　catalytic　activity　is　related　to　the　dynamic　interplay　between　coexisting　phases,　with　the　resulting　strained　PdO　having　more　favorable　energetics　for　methane　oxidation.　Palladium-based　catalysts　are　highly　effective　for　the　complete　oxidation　of　methane.　Here,　the　authors　employ　operando　transmission　electron　microscopy,　near-ambient　pressure　X-ray　photoelectron　spectroscopy,　and　density　functional　theory　calculations　to　investigate　the　active　state　and　catalytic　function　of　Pd　nanoparticles　in　methane　oxidation.