Dibenzyl sulfide was oxidized at the a-carbon to yield benzaldehyde in the presence of $Pd(NO_3)_2$. Oxygen itself could not oxidize the sulfide directly, instead the nitrato ligand of the palladium complex transferred oxygen to dibenzyl sulfide to form benzaldehyde. The X-ray crystal structure of the intermediate complex, cis-[$Pd(NO_3)_2${$S(CH_2C_6H_5)_2$}$_2$], revealed that the nitrato ligand was unidentate. Para-substituted dibenzyl sulfides I, $(YC_6H_4CH_2)_2S $wherein Y = $OCH_3$, $CH_3$, Cl, CN, or $NO_2$, were synthesized and reacted with palladium nitrate, and those with electron-donating substituents (Y = $OCH_3$ and $CH_3$) were good substrates for the oxidation reaction with palladium nitrate. Thus, the reaction mechanism of the oxygen transfer was proposed to include nucleophilic benzylic carbon.