This paper describes the behavior of palladium in palladium-coated Cu (PdCu) wire bonding and its impact on bond reliability by utilizing transmission electron microscopy (TEM). A Pd layer approximately 80nm thick, which is coated on the surface of Cu wire, dissolves into the Cu matrix during ball formation (under N₂ gas protection) when the wire tip is melted to form a ball. As a result of dissolving the very thin Pd layer into the ball, Pd is almost undetectable along the entire bond interface between the ball and the Al pad. The behavior of Pd during thermal aging in air, however, is different for central and peripheral interfaces. At the central interface, less than 5at.% Pd is present after 168h aging at 175°C. At the periphery, however, Pd diffuses back and congregates, reaching a level of ∼12at.% after 24h, and a Pd-rich (Cu,Pd)₉Al₄ layer (>40at.% Pd) forms after 168h. Pd acts substitutionally in Cu₉Al₄ but cannot penetrate into the CuAl₂ or CuAl. By comparison of intermetallic thickness and interfacial morphology between PdCu and bare Cu wire bonds, it is concluded that the presence of Pd reduces intermetallic growth rate, and is associated with numerous nanovoids in PdCu bonds.