A combined experimental and computational approach has been used to shed light on the mechanism of the Pd-catalyzed oxidative homocoupling of alkynes using oxygen as the oxidant. Mechanistic understanding is important because of the synthetically relevant direct involvement of oxygen in the oxidative coupling and because of the presence of related processes as undesired side reactions in cross-coupling reactions involving terminal alkynes. A low-ligated [Pd(PPh₃)(alkyne)] complex is key in the process, and it can be conveniently generated from allylic palladium(II) complexes in the presence of a base or from Pd(I) allylic dimers as precatalysts. The catalytic coupling occurs by alkyne metalation to give an anionic [Pd(PPh₃)(alkynyl)]⁻ complex that is then oxidized by oxygen. The interaction with oxygen occurs only on this electron-rich Pd(0) anionic species and leads to a (κO,κO-peroxo)palladium(II) singlet intermediate that undergoes subsequent protonolysis to give a (κO-hydroperoxo)palladium(II) complex and then hydrogen peroxide. The second alkyne metalation occurs on a Pd(II) derivative to give a bis(alkynyl)palladium(II) complex that evolves to the product by reductive elimination as the product-forming step. This reaction is an oxidase-type process that, in contrast to most Pd-catalyzed oxidative processes, occurs without separation of the substrate transformation and the catalyst oxidation, with these two processes being intertwined and dependent on one another.