The changes in catalyst structure and species and charge transfer during the reduction of a co-precipitated Pd/ZnO catalyst with 15.9% Pd loading were investigated by temperature-programmed reduction, temperature-programmed desorption, temperature-programmed electronic conductivity, and X-ray diffraction. The effect of reduction temperature on the catalytic performance in steam reforming of methanol was measured. The results show that metallic Pd is highly dispersed on ZnO. The strong interaction between Pd and ZnO during the catalyst reduction with hydrogen leads to hydrogen spillover from Pd to ZnO, which causes the reduction of ZnO close to the metallic Pd and the formation of PdZn alloy. The reduction process proceeds as follows: PdO/ZnO→Pd/ZnO→PdZnO1−x/ZnO→amorphous PdZn alloy/ZnO→crystalline PdZn alloy/ZnO. Metallic Pd is present in a fine dispersity and amorphous state, and the PdZn alloy can be formed at lower temperature than that reported in the literature. When the catalyst was reduced in the temperature range from 523 K to 573 K, the crystallite size of the PdZn alloy is 5–14 nm, and the methanol conversion and CO2selectivity reach maxima.