The effects of palladium and mixtures containing palladium on the absorbance characteristics of lead, thallium, cadmium, selenium, manganese and cobalt are described. These data, together with results of scanning electron microscopy showing the distribution of palladium on the graphite surface, indicate that palladium has a physical mechanism of analyte modification. During furnace heating, the analyte dissolves in molten palladium and may combine with it chemically. However, the rate limiting step leading to atomization appears to be diffusion of the analyte from palladium. The addition of magnesium, molybdenum or powdered carbon increases the speed of diffusion by causing palladium to form smaller droplets, and hence produces sharper absorbance peaks. Palladium becomes less effective as the atomization temperature increases, because the rate of diffusion is higher. This accounts for palladium having only a small stabilizing effect on less volatile elements such as manganese and cobalt. The addition of ascorbic acid to palladium has no significant effect on its modifying properties in a dilute nitric acid matrix. Results of kinetic studies on the atomization of gold are consistent with analyte diffusion out of palladium as the rate-limiting step leading to atomization.