The mechanism of alcohol oxidation was investigated using the conversion of cinnamyl alcohol (1) over Pd-based catalysts as a sensitive test reaction. Studies in a slurry reactor revealed that dehydrogenation and oxidative dehydrogenation of 1 follow the same reaction pathways independent of the presence or absence of oxygen and reaction conditions. Hydrogenation and hydrogenolysis side reactions indicated the presence of hydrogen on the metal surface during reactions. Catalyst deactivation in Ar is attributed to decarbonylation reactions and site blocking by CO. Introduction of molecular oxygen induced a dramatic enhancement of alcohol conversion rate by a factor of up to 285 due to oxidative removal of CO. Strong adsorption of CO on Pd/Al2O3 and its rapid removal by oxygen were corroborated by in situ ATR-IR spectroscopy. All these observations conform to a model according to which oxidation of 1 follows the classical dehydrogenation mechanism, and the key role of oxygen is the continuous oxidative removal of CO and other degradation products from the active sites. This oxidative cleaning of the metal surface allows a high rate of alcohol dehydrogenation even when the oxidation of the co-product hydrogen is slow and incomplete. It is likely that the observed effects are not limited to the oxidation of 1 on Pd, and regeneration of the active sites by oxygen generally plays an important role during aerobic oxidation of alcohols on platinum metals.