Methane emissions from vehicles have made a significant contribution to the greenhouse effect, primarily due to its high global warming potential. Supported noble metal catalysts are widely employed in catalytic combustion of methane in vehicles, but they still face challenges such as inadequate low-temperature activity and deactivation due to sintering under harsh operating conditions. In the present work, a series of encapsulated structured catalysts with palladium nanoparticles confined in hydrophobic silicalite-2 were prepared by an in situ synthesis method. Based on various characterization methods, including XRD, HR-TEM, XPS, H2-TPR, O2-TPD, H2O-TPD, CH4-TPR, Raman, and in situ DRIFTS-MS, it was confirmed that PdOx nanoparticles were mainly encapsulated inside the silicalite-2 zeolite, which further maintained the stability of the nanoparticles under harsh conditions. Specifically, the 3Pd@S-2 sample exhibited high catalytic activity for methane oxidation even after harsh hydrothermal aging at 750 °C for 16 h and maintained long-term stability at 400 °C for 130 h during wet methane combustion. In situ Raman spectroscopy has confirmed that PdOx species act as active species for methane oxidation. During this reaction, methane reacts with PdOx to produce CO2 and H2O, while simultaneously reducing PdOx to metallic Pd species, which is further reoxidized by oxygen to replenish the PdOx catalyst.