Multilayer piezoelectric actuators have received a lot of attention recently due to their use in diesel engine fuel-injectors. The workhorse material for these applications has been "soft" PZT, which exhibits the optimum balance of high d33 piezoelectric coefficients and temperature stability throughout the working environment of automotive actuators. The addition of a sintering aid such as Li2CO3 to the PZT reduces the sintering temperature and allows use of cheaper electrode compositions such as Ag1-xPdx as opposed to noble metals like Pt. However, there are additional problems associated with the interactions of Ag/Pd electrodes and PZT. In this work, we reacted mixed powders of the piezo-ceramic and the Ag/Pd electrode and it was found that a temperature window exists were Pd in the Ag/Pd electrode oxidizes to form PdO which consequently reacts with either the PZT or innate excess PbO to form a secondary phase. This was evidenced by x-ray diffraction scans on the reacted powders. Transmission electron microscopy revealed that the new phase formed on the surface of the Ag/Pd particles and was composed of Ag, Pd, Pb and O. In conjunction with the x-ray results, this evidence suggests the phase is an Ag-containing derivative of PbPdO2. In addition, there was evidence that the reaction led to desegregation of the component materials during the heat treatment. It was shown that sintering in a low pO2 environment suppresses the reaction.