AbstractSynergistic Pd–In2O3 catalysts are promising candidates for producing methanol via CO2 hydrogenation, and the metal phases in them can be tuned by thermal reduction treatment affecting the catalytic activity significantly. This work presents a comprehensive investigation to gain an insight into the effect of thermal reduction temperature on the variation and interaction of Pd and In2O3 phases supported on CeO2 (viz., PdIn/CeO2) and their correlations with CO2 hydrogenation toward methanol synthesis. The findings show that Pd/In‐rich PdIn alloys and In2O3 with relatively strong interaction are key phases (by reducing the PdIn/CeO2 at 300°C) for promoting methanol formation, leading to a high selectivity to methanol at 78.9% and space–time yield (STY) of 3.6 gCH3OH gPdIn−1 h−1. A further increase in reduction temperature (from 300 to 500°C) promoted the formation of homogenized PdIn intermetallic alloys with significantly poor ability for H2 dissociation and CO2 activation, and hence poor methanol yield.