The mechanism of Pd(II)-catalyzed, mono-N-protected amino acid (MPAA) ligand and TBHP oxidant-mediated lactonization of β-C(sp3)–H bond in aliphatic carboxylic acid has been studied. We have shown that the combination of TBHP oxidant and MPAA ligand is very critical: the reaction proceeds via MPAA ligand-mediated Pd(II)/Pd(IV) oxidation by TBHP, followed by C–O reductive elimination from the Pd(IV) intermediate. While Pd(II)/Pd(IV) oxidation is a rate-limiting step, C–H bond activation is the regioselectivity-controlling step. MPAA ligand acts not only as an auxiliary ligand to stabilize the catalytic active species but also as a proton acceptor in C–H bond deprotonation and as a proton donor during Pd(II)/Pd(IV) oxidation by TBHP. The use of a peroxide-based oxidant with the hydroxyl group is required: in the rate-limiting Pd(II)/Pd(IV) oxidation transition state, the H-atom of the OH group participates in the 1,2-hydrogen shift to facilitate proton-shuttling between MPAA ligand and peroxide. Thus, lactonization of the C(sp3)–H bond in aliphatic carboxylic acid occurs via the Pd(II)/Pd(IV) catalytic cycle, unlike the previously reported Pd(II)-catalyzed pyridone ligand and O2 oxidant-assisted benzylic C–H lactonization in aromatic o-methyl benzoic acid, which occurs via the Pd(II)/Pd(0) catalytic cycle and an intramolecular SN2 nucleophilic substitution mechanism. A comparison of these findings for C(sp3)–H bond lactonization in aliphatic and aromatic carboxylic acids enabled us to identify the roles of catalyst, substrate, ligand, and oxidant.