The results of temperature-programmed reaction experimental studies and mathematical modeling of self-sustained oscillations within an inverse temperature hysteresis in CO oxidation over Pd catalyst are presented. The experimental data demonstrate the influence of the reaction medium on the catalyst activity under reaction conditions. Under oxygen excess in the feeding gas mixture and high temperature, the defects appeared on the initially flat surface of metallic palladium due to deep oxidation of palladium (three-dimensional PdO nanoparticles were observed). The palladium oxide reduced under cooling of the catalytic system, and the catalyst surface became flat again. To take into account these variations of the palladium surface structure, we consider the piecewise-constant dependence of the rate constant of some reaction step on the concentrations of oxygen species, namely, the dissolved oxygen or oxide in the palladium bulk. The proposed model of the process in the cascade of continuous stirred-tank reactors that account for these dependences qualitatively describes the inverse temperature hysteresis as well as the oscillatory dynamics within the hysteresis loop which were obtained experimentally.