Development of new catalysts for controlling nitrogen oxides (NOx) emissions is an important technical challenge as increasingly strict emission limits are being imposed. A new catalyst Pd2+ substituted CeO2 (Ce0.98Pd0.02O2-δ) was synthesized by solution combustion method. The material was characterized by XRD, TEM and XPS and used to investigate the reduction of NO by H2. The catalyst shows 100% N2 selectivity at low temperature and thus is superior to other catalysts reported in literature. A bifunctional reaction mechanism has been proposed to model the experimental data. © 2007 Elsevier B.V. All rights reserved.