This study aims to explore the potential merits of palladium oxide sensing electrode. PdO is applied on a solidstate potentiometric sensor on an yttria-stabilized zirconia (YSZ) electrolyte as sensing electrode for the first time. The physical properties, morphology, chemical properties, and sensing performance of synthetic PdO electrode are characterized. An attractive phenomenon is observed that the thicknesses of PdO electrode have a little impact on the sensor response. The sensing mechanism is discussed regarding to the impedance analysis and sensing results of the sensor. We find that the change of electric potential of the sensor in CO environment is irrelevant to mobile oxygen in electrolyte, and the charged intermediate on the PdO is proposed to contribute the sensor signal. In addition, the response of sensor depends logarithmically on the concentrations of CO, and the slope is −33.4 mV/decade.