Pd-SnO2 composite nanoceramics have been prepared from SnO2 and Pd nanoparticles through traditional pressing and sintering. Their responses to CO at room temperature are found to depend greatly on the content of Pd. For those samples with 1.0 and 5.0 mol% Pd, their resistance increases dramatically upon being exposed to CO in air; while for samples of 0.2 mol% Pd, their resistance decreases greatly upon being exposed to CO in air, and extraordinary room-temperature CO sensing capabilities, including high sensitivities around 15, short response time of 20 s and recovery time of 60 s for 100 ppm CO in air, a high selectivity against H2, have been observed for them. X-ray photoelectron spectroscopy analyses showed that Pd2+ was formed in samples of 1 mol% Pd, while both Pd2+ and Pd4+ were formed in samples of 0.2 mol% Pd. It is proposed that for Pd-SnO2 composite nanoceramics, Pd2+ is responsible for CO-induced increase while Pd4+ is responsible for CO-induced decrease in resistance.