Pd catalysts show high activity and selectivity for hydrogen peroxide (H2O2) direct synthesis. The catalytic performance is found to be strongly dependent on the catalyst size, and metallic Pd catalysts can be partially oxidized during reaction. To determine the active center of H2O2 direct synthesis, the catalytic activity of Pd with different oxidation degree was investigated in this study by using density functional theory. Firstly, the global minimum structures of Pdn, (PdO)n, and (PdO0.5)n (n= 4, 12, and 19) were obtained using minimum hopping method. It is found that the oxidation can induce significant structural reconstruction, which enhances the Pd-O interaction. The reaction paths of H2O2 and H2O formation were obtained, and then the rate coefficients were calculated to study the reactivity and selectivity. Pd(111) surfaces with different O coverage were also considered. After oxidized, the larger Pd nanoclusters and Pd(111) surface show higher reaction activity and H2O2 selectivity, due to the weakened O2 adsorption strength, increased energy barriers of H2O2 and OOH dissociation, and 0.32 ML O/Pd(111) shows superior catalytic activity and H2O2 selectivity. The partially oxidized Pd sites have high activity and selectivity for H2O2 formation. This work provides an insight into the evolution of Pd catalysts and the effect on catalytic performance during H2O2 direct synthesis.