The conversion of guaiacol into the nylon precursors, cyclohexanol and cyclohexanone, is catalyzed by palladium supported on high surface area ceria (Pd/HS CeO2) under mild conditions (100 °C, ≤1 bar H2) via sequential hydrodemethoxylation and hydrogenation. In contrast, the 2-methoxycyclohexanol side product is generated by direct guaiacol hydrogenation. Reaction selectivity is determined by competing C-O bond hydrogenolysis versus arene hydrogenation. Hydrogenolysis selectivity increases as H2 pressure decreases, and over 80% H2 is incorporated into the products at 1 bar H2. Higher reactivity of guaiacol than anisole implies that the hydroxyl group is essential in Pd/HS CeO2 catalysis. Participation of water in the conversion is evidenced by deuterium incorporation at non-exchangeable positions when the reaction is performed in D2O. The combination of near quantitative mass balance of H2, high recyclability, and use of water as a solvent offers a simple, green and efficient conversion of lignin-derived aromatics into commercial products.