Lattice oxygen of TiO<sub>2sub> is activated by the substitution of Pd ion in its lattice. Ti<sub>1鈥?i>xsub>Pd<sub>xsub>O<sub>2鈥?i>xsub> (x = 0.01鈥?.03) have been synthesized by solution combustion method crystallizing in anatase TiO<sub>2sub> structure. Pd is in +2 oxidation state and Ti is in +4 oxidation state in the catalyst. Pd is more ionic in TiO<sub>2sub> lattice compared to Pd in PdO. Oxygen storage capacity defined by 鈥渁mount of oxygen that is used reversibly to oxidize CO鈥?is as high as 5100 渭mol/g of Ti<sub>0.97sub>Pd<sub>0.03sub>O<sub>1.97sub>. Oxygen is extracted by CO to CO<sub>2sub> in absence of feed oxygen even at room temperature which is more than 20 times compared to pure TiO<sub>2sub>. Rate of CO oxidation is 2.75 渭mol g<sup>鈥?sup> s<sup>鈥?sup> at 60 掳C over Ti<sub>0.97sub>Pd<sub>0.03sub>O<sub>1.97sub> and C<sub>2sub>H<sub>2sub> gets oxidized to CO<sub>2sub> and H<sub>2sub>O at room temperature. Catalyst is not poisoned on long time operation of the reactor. Such high catalytic activity is due to activated lattice oxygen created by the substitution of Pd ion as seen from first-principles density functional theory (DFT) calculations with 96 atom supercells of Ti<sub>32sub>O<sub>64sub>, Ti<sub>31sub>Pd<sub>1sub>O<sub>63sub>, Ti<sub>30sub>Pd<sub>2sub>O<sub>62sub>, and Ti<sub>29sub>Pd<sub>3sub>O<sub>61sub>. The compounds crystallize in anatase TiO<sub>2sub> structure with Pd<sup>2+sup> ion in nearly square planar geometry and TiO<sub>6sub> octahedra are distorted by the creation of weakly bound oxygens. Structural analysis of Ti<sub>31sub>Pd<sub>1sub>O<sub>63sub> which is close to 3% Pd ion substituted TiO<sub>2sub> shows that oxygens associated with both Ti and Pd ions in the lattice show bond valence sum of 1.87, a low value characteristic of weak oxygen in the lattice compared to oxygens with valence 2 and above in the same lattice. Exact positions of activated oxygens have been identified in the lattice from DFT calculations.