The Pd ion substituted TiO$_2$, synthesized by solution combustion method crystallizes in anatase structure with stable composition Ti$_{1-x}$Pd$_x$O$_{2-x}$ (x = 0.01–0.03) creating an oxide ion vacancy per Pd$^{2+}$ ion substitution. Over 1.35 mol of H$_2$ per mole of bulk Pd ions, in ~ 5 nm nanocrystalline catalyst Ti$_{1-x}$Pd$_x$O$_{2-x}$ (x = 0.03) is adsorbed at 300 K. On exposure of only hydrogen to Ti$_{0.98}$Pd$_{0.02}$O$_{1.98}$ at 300 K, water is formed making the catalyst wet. On heating in a vacuum, mass loss due to water is 0.026 mol /mole of catalyst meaning 1.3 mol of hydrogen per mole of Pd ion in the catalyst. Pd ion substitution in TiO$_2$ anatase activates lattice oxygen leading to the formation of H$_2$O on exposure to H$_2$ gas at 300 K utilizing lattice oxygen. On heating in air at 650 K the reduced catalyst is regenerated. The catalyst produces a high rate of H$_2$ + O$_2$ recombination up to 9 µmoles$^{−1}$g$^{−1}$ at 300 K, and over 230 µmoles$^{−1}$g$^{−1}$ at 330 K with a TOF of 2000 h$^{−1}$. The catalyst is coated on cordierite honeycomb avoiding handling of powder catalyst. The rates are highest compared to any catalyst for H$_2$ + O$_2$ recombination known so far. Extensive DFT calculation on (101) surface in Ti$_{31}$Pdi$_{1}$O$_{63}$ slab confirmed (a) one oxygen out of 4 bonded to Pd ion in nearly square geometry is fully activated to form water molecule creating an oxide ion vacancy; (b) dissociative adsorption of H$_2$ on one of the Pd as well as oxide ion and not both on Pd ion; (c) exchange of feed oxygen with lattice oxygen during 2H$_2$ + O$_2$ recombination; (d) 2H$_2$ + O$_2$ → 2H$_2$O molecules form per Pd ion in one cycle regenerating the catalyst, Ti$_{0.97}$Pd$_{0.03}$O$_{1.97}$ surface explaining high rates of recombination and (e) Pd ion undergoes redox cycle with Ti and oxide ions acting as charge reservoirs.