The selective oxidation of methane, the primary component of natural gas, remains an important challenge in catalysis. We used colloidal gold-palladium nanoparticles, rather than the same nanoparticles supported on titanium oxide, to oxidize methane to methanol with high selectivity (92%) in aqueous solution at mild temperatures. Then, using isotopically labeled oxygen (O2) as an oxidant in the presence of hydrogen peroxide (H2O2), we demonstrated that the resulting methanol incorporated a substantial fraction (70%) of gas-phase O2. More oxygenated products were formed than the amount of H2O2 consumed, suggesting that the controlled breakdown of H2O2 activates methane, which subsequently incorporates molecular oxygen through a radical process. If a source of methyl radicals can be established, then the selective oxidation of methane to methanol using molecular oxygen is possible.