Pd-based LaFeO3 perovskite-type catalysts have been prepared by the amorphous citrate method with the aim to expose Pd at the surface of LaFeO3 (Pd/LaFeO3) and to force Pd to form a solid solution with LaFeO3 (LaFe0.95Pd0.05O3). The catalysts have been tested for methane combustion in the temperature range of 200−900 °C. The state of Pd in the various samples has been accurately characterized using XANES, EXAFS, XPS, H2-TPR, and DRIFTS. The shape of the white line of the Pd K edge XANES spectrum of LaFe0.95Pd0.05O3 indicates that palladium most probably exhibits distorted octahedral coordination. Hence, Pd is fully incorporated in the perovskite structure, substituting Fe, which is also confirmed by EXAFS refinement. On the contrary, the XANES spectrum of Pd/LaFeO3 corresponds more to Pd in square planar coordination, suggesting that Pd is mainly distributed on the surface of LaFeO3, most probably in the form of PdO. The different oxidation states and local coordination of Pd in LaFe0.95Pd0.05O3 (most likely Pd3+ in distorted octahedral coordination) and Pd/LaFeO3 (predominantly Pd2+ in square planar coordination) reflect the distinct availability of Pd for reaction and coincide with the different catalytic performances of the catalysts. Pd/LaFeO3 exhibits high performance for the oxidation of methane (T50% = 460 °C), which correlates with the high concentration of Pd species on the oxide surface. On the contrary, when Pd is incorporated within LaFeO3, the corresponding catalyst shows poor performance similar to that of LaFeO3. Reaction at 900 °C causes serious changes in the structure of the catalysts, which were interpreted in light of the initial structure, the “self-regenerative property” of perovskite-type oxides, and the PdO ↔ Pd equilibrium.