The milling of Palladium acetate and CeO2 under dry conditions results in robust, environmentally friendly catalysts with excellent methane oxidation activity. These catalysts show superior performance compared to those prepared by milling metallic Pd and outperform Pd/CeO2 catalysts prepared by traditional incipient wetness technology. Morphological investigation by HRTEM, Raman and DRIFT spectroscopic analysis, in-situ synchrotron X-ray diffraction (XRD) and X-ray absorption fine structure (XAFS) characterization techniques, coupled with ambient pressure XPS analysis, have been used to deeply characterize the samples, and allowed to identify the presence of Pd0/Pd2+ species with different degrees of interaction with ceria (Ce3+/Ce4+). These Pd species are likely generated by the mechanical and electronic interplay taking place over the ceria surface during milling and are indicated as responsible for the enhanced catalytic activity.