We investigated the impact of ZrO2 on the performance of palladium-based oxidation catalysts with respect to low-temperature activity, hydrothermal stability, and sulfur tolerance. Pd supported on ZrO2 and SiO2 were synthesized for a comparative study. Additionally, in an attempt to maximize the ZrO2 surface area and improve sulfur tolerance, a Pd support with ZrO2-dispersed onto SiO2 was studied. The physicochemical properties of the catalysts were examined using ICP, N2 sorption, XRD, SEM, TEM, and NH3-, CO2-, and NOx-TPD. The activity of the Pd catalysts were measured from 60 to 600 °C in a flow of 4000 ppm CO, 500 ppm NO, 1000 ppm C3H6, 4% O2, 5% H2O, and Ar balance. The Pd catalysts were evaluated in fresh, sulfated, and hydrothermally aged states. Overall, the ZrO2-containing catalysts showed considerably higher CO and C3H6 oxidation activity than Pd/SiO2 under the reaction conditions studied. The good performance of ZrO2-containing catalysts appeared to be due in part to high Pd dispersion resulting from strong Pd and support interaction. Another beneficial effect of strong interaction between Pd and ZrO2 was manifested as a greater hydrothermal stability with good oxidation activity even after aging at 800 and 900 °C for 16 h. In contrast, Pd/SiO2 suffered significant performance loss due to Pd particle coarsening. Although the Pd/ZrO2-SiO2 catalyst was not more active than Pd/ZrO2, improved tolerance to sulfur was realized. Unlike the bulk ZrO2 support, the ZrO2-incorporated SiO2 presented only weak basicity leading to a superior sulfur tolerance of Pd/ZrO2-SiO2. These results confirmed the potential of developing Pd-based oxidation catalysts with enhanced low-temperature activity and durability using ZrO2-SiO2 supports. Controlling morphology and accessible area of the dispersed ZrO2 layer appeared critical to further maximize the catalytic performance.