The oxidation of ethene on the Pd(111) surface was studied in the temperature range 330 K to 923 K by in-situ XPS and mass spectrometry both during heating and cooling in a reaction mixture of 5x10 -4 mbar C 2 H 4 and 1.5x10 -3 mbar O 2 . Carbon-containing surface species were found to be strongly predominant over oxygen species within the whole temperature range, despite the excess of oxygen in the gas phase. Diffusion of carbon into the palladium bulk started at 480 K, leading at ~500 K to the appearance of an electronically altered, dissolved carbon phase with a C1s binding energy of 284.45eV, which extended over several layers in the near-surface region and was stable up to ~650 K. This spectroscopic trend was clearly related to a pronounced shift of catalytic selectivity toward CO. Above 660K the dissolved carbon species decomposed and the reaction took place on an adsorbate-depleted Pd metal surface, with CO as the main product. During the cooling ramp the same surface-near carbon modification formed at a 70 degree lower threshold temperature, inducing a pronounced hysteresis of the catalytic selectivity.