Palladium (Pd) catalysts have been extensively studied for the direct synthesis of H2O through the hydrogen oxidation reaction at ambient conditions. This heterogeneous catalytic reaction not only holds considerable practical significance but also serves as a classical model for investigating fundamental mechanisms, including adsorption and reactions between adsorbates. Nonetheless, the governing mechanisms and kinetics of its intermediate reaction stages under varying gas conditions remain elusive. This is attributed to the intricate interplay between adsorption, atomic diffusion, and concurrent phase transformation of catalyst. Herein, the Pd-catalyzed, water-forming hydrogen oxidation is studied in situ, to investigate intermediate reaction stages via gas cell transmission electron microscopy. The dynamic behaviors of water generation, associated with reversible palladium hydride formation, are captured in real time with a nanoscale spatial resolution. Our findings suggest that the hydrogen oxidation rate catalyzed by Pd is significantly affected by the sequence in which gases are introduced. Through direct evidence of electron diffraction and density functional theory calculation, we demonstrate that the hydrogen oxidation rate is limited by precursors' adsorption. These nanoscale insights help identify the optimal reaction conditions for Pd-catalyzed hydrogen oxidation, which has substantial implications for water production technologies. The developed understanding also advocates a broader exploration of analogous mechanisms in other metal-catalyzed reactions.