One of the main issues for the catalytic abatement of methane from natural gas fueled vehicles over Pd-based materials is due to the large amount of water vapor in the exhausts, which can severely deactivate the catalyst. In this work, we investigated the effect of water added during methane oxidation on a series of silica doped Pd/ceria catalysts prepared by solution combustion synthesis, using different characterization techniques. The results obtained by coupling Temperature Programmed Oxidation (TPO) experiments and High Resolution Transmission Electron Microscopy (HRTEM) indicate that the mechanism of PdO-Pd-PdO phase transformation over Si-doped catalysts is different in dry and wet conditions. The presence of water not only shifts the onset of PdO decomposition to higher temperature, but also PdO-Pd transition is found to proceed via the formation of multi-domain PdO/Pd particles. This effect is tentatively attributed to the suppression of oxygen exchange induced by the presence of stable hydroxyl groups on silica.