Abstract: The direct conversion of methane to hythane, an alternative fuel for internal combustion engines, is effected by subjecting methane to a controlled oxidation with water vapor at a temperature of about 400.degree. to about 500.degree. C. and a pressure of about 1 to about 5 atmospheres, in the presence of a catalyst comprising palladium or a binary alloy thereof with another metal selected from the group consisting of elements belonging to Group IB, Group IIA, Group VIII and the lanthanide series of the Periodic Table, the catalyst being supported on a porous carrier. The direct conversion of methane to hythane under conditions of low temperature and pressure in accordance with the present invention enables hythane to be produced not only economically and efficiently, but also at or near vehicle fueling sites, thereby eliminating the storage and transportation of dangerously reactive hydrogen for mixing with methane or natural gas.