Oxygen concentration ([O2]) in vehicle exhaust fluctuates sharply under different working conditions, such as acceleration, braking, uphill, downhill, and so forth. To reveal the structure–function relationship of Pd–Pt/Al2O3 catalyst from rich to lean burn conditions, the active Pd species and the CH4 reaction paths were studied. It was found that from rich to lean burn conditions, more PdOx was formed, and metallic Pd was gradually transformed to Pd2+ and then to Pd4+. H2O inhibition on CH4 oxidation was found under both rich- and lean-burn conditions below ∼450 °C. However, above ∼450 °C, H2O no longer inhibited CH4 conversion and participated in CH4 reforming reaction, which was dependent on [O2]. The results of in situ DRIFT showed that the adsorption of H2O on Pd0 under rich conditions and the formation of hydrogen bonds between H2O and Pd–OH under lean conditions suppressed the CH4 oxidation. Under rich-burn conditions, the hydroxyl groups were found to accumulate on Pd0 until the CH4 reforming reaction occurred. This work inspired a chance to improve the low-temperature conversion efficiency of CH4 by finely designing the catalyst with more antioxidant metallic Pd sites.