The chemical kinetics of methane oxidation in a steam-diluted environment are studied in the present study. Various well-validated mechanisms for methane combustion are adopted and compared with experimental data. Ignition delay, laminar flame speed, and emissions for CH4 combustion with steam dilution are discussed. Cumulative relative error parameter was determined for all mechanisms considered in this study to evaluate the prediction level in quantifiable terms. Reaction pathways under no and steam-diluted environments are analyzed, and key elementary reactions and species are identified in these conditions. The analysis gives a relative idea of the applicability of some of the reduced mechanisms for the diluted steam conditions. This study aims to guide future computational fluid dynamics simulations to accurately predict combustion characteristics in these conditions. Computations of laminar flame speed from GRI-3.0, Aramco3.0, Curran, and San Diego mechanisms were the most precise under diluted steam conditions. Similarly, for the calculation of ignition delay of methane under the steam dilution, the Aramco mechanism and the Curran’s mechanism were able to predict the experimentally observed values most closely. Sensitivity study for the OH concentrations shows that the H-abstraction of methane from OH radicals has an opposing trend with dilution for Aramco and GRI-3.0 mechanism. On the other hand, CO and NO emissions were reduced significantly, with the dilution increased from 0 to 20%. The third-body effect of steam is observed to dominate the deviation observed between the detailed and reduced mechanism. For low operating pressure conditions, the GRI-3.0 mechanism gives an excellent prediction, whereas, for applications like gas turbines and furnaces, Aramco-3.0 and Curran mechanisms can be adopted to give good results. The San Diego mechanism can be chosen for low computational facility purposes as it shows very good predictions for ignition delay and laminar flame speed computations.