We present experimental evidence of the gapless band structure of PbPdO2 by combined x-ray photoemission and x-ray absorption spectra complemented with first principles band structure calculations. The electronic structure near the Fermi level of PbPdO2 is mainly composed of O 2p and Pd 4d bands, constructing the conduction path along the Pd-O layer in PbPdO2. Pd deficiency in PbPdO2 causes decreased O 2p-Pd 4d and increased O 2p-Pb 6p hybridizations, thereby inducing a small band gap and hence reducing conductivity. Hall measurements indicate that PbPdO2 is a p-type gapless semiconductor with intrinsic hole carriers transporting in the Pd-O layers.