Pd/ZnO has been shown in recent years to have high selectivity toward CO2 during methanol steam reforming. It is commonly assumed that PdZn alloy formation is essential to achieve high selectivity toward CO2. The simplest method for forming a PdZn alloy is to treat a Pd/ZnO catalyst at elevated temperatures in H2, generally >350 °C. The high-temperature treatment, while transforming Pd to PdZn, also leads to particle growth. This makes it difficult to independently assess the role of particle size and composition on selectivity. In this work, we have used alternative activation treatments to vary independently the particle size and extent of alloy formation. XRD and TEM were used to obtain estimates of average crystallite size and composition. We found that even without any pretreatment, PdZn alloy particles were formed after reaction at 250 °C, due to the facile reduction of ZnO in the presence of Pd and H2. Samples treated at low temperatures in H2 showed the coexistence of monometallic Pd and PdZn alloy particles. Higher-temperature reduction led to complete transformation of Pd into the PdZn alloy. However, the selectivity toward CO2 did not increase monotonically with the extent of alloy formation. Samples with low alloy content also showed CO2 selectivity comparable to those with complete alloy formation. In each case, lower CO2 selectivity was exhibited by samples containing small particles (∼1.5 nm). We conclude that one consequence of high-temperature reduction is elimination of these small particles, leading to improved selectivity. It was also surprising that an increase in PdZn alloy crystallite size with increasing reduction temperature had no adverse impact on catalyst reactivity.