A novel Pd-based electro-Fenton (E-Fenton) process has recently been developed to transform organic contaminants in groundwater. However, it only produces H2O2 and requires addition of Fe(2+). In this study, an innovative approach is developed to effectively regulate the generation of Fe(2+) from an iron cathode in a three-electrode system in addition to H2O2 production. The Fe(2+) is then used for the Pd-catalytic transformation of methyl tert-butyl ether (MTBE) in groundwater. Results from batch experiments suggest Fe(2+) accumulation follows pseudo-first-order kinetics with rate quantitatively regulated by current and pH, and MTBE can be completely transformed. In a specially configured three-electrode column using iron as the first cathode, the localized acidic conditions develop automatically in the iron cathode and Pd zone by partitioning the current between the two cathodes, leading to controllable generation of Fe(2+) and H2O2. Effects of electrolyte concentrations and types as well as humic acid on MTBE transformation are slight. The stable transformation (~70%) in a long-term study (20 days) suggests this improved Pd-based E-Fenton process is sustainable to produce Fe(2+), H2O2, and appropriate pH conditions simultaneously for transforming organic contaminants. This study presents a new concept of generating Fe(2+) from an iron cathode for the processes requiring Fe(2+).