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Efficient production of high value-added chemicals and biofuels via low-temperature chemoselective HDO of lignin derivatives in water is still a challenge. Here, we construct a low-cost, active and stable Pd/PCE catalyst using phosphoric acid-modified commercial Celite (PCE) as the support, and this catalyst exhibits excellent activity in low-temperature HDO of vanillin as well as other lignin derivatives in water. The superior catalytic performance is due to the presence of P species on the surface of Pd/PCE, accelerating the selective conversion of the intermediate into the final product. Detailed experimental and mechanistic studies reveal that the rapid conversion of the intermediate to the final product proceeds via a free-radical process in an interfacial microenvironment created by intimate interacting between the P species and Pd NPs. The insights of this work provide a new low-cost catalytic system for efficient production of valuable chemicals and future biofuels from lignin derivatives. [ABSTRACT FROM AUTHOR]