A series of new complexes [(L-L)Pd(Ar)(CF3)] (L-L = dppe, dppp, tmeda; Ar = Ph, p-Tol, C6D5) have been synthesized and fully characterized in solution and in the solid state. Remarkable Ph-X activation (X = I, Cl) by [(dppe)Pd(Ph)(CF3)] (1) has been found to come about to cleanly produce biphenyl and [(dppe)Pd(Ph)(X)]. This reaction does not take place under rigorously anhydrous conditions but in the presence of traces of water it readily occurs, exhibiting an induction period and being zero order in PhI. As shown by mechanistic studies, the role of water is to promote reduction of small quantities of the Pd(II) complex to Pd(0) which activates the Ph-X bond. Subsequent transmetalation to give diphenyl Pd complexes, followed by Ph-Ph reductive elimination give rise to the observed products. The water-induced reduction to catalytically active Pd(0) has been demonstrated to proceed via both the Pd(II)/P(III) to Pd(0)/P(V) redox mechanism and alpha-F transfer, followed by facile hydrolysis of the difluorocarbene to carbonyl, migratory insertion, and reductive elimination of PhC(X)O (X = F, OH, or OOCPh). In the absence of H2O and ArX, the diphosphine-stabilized trifluoromethyl Pd phenyl complexes undergo slow Ph-CF3 reductive elimination under reinforcing conditions (xylenes, 145 degrees C).