Methanol is an important platform molecule for chemical synthesis and its high energy density also renders it a good candidate as a cleaner transportation fuel. At present, methanol is manufactured from natural gas via the indirect syn-gas route. Here we show that ethylene glycol, a versatile chemical derived from biomass or fossil fuels, can be directly converted to methanol in hydrogen with high selectivity over a Pd/Fe(2)O(3) co-precipitated catalyst. This opens up a possibility for diversification in natural resources for energy-starved countries. The working catalyst contains extremely small 'PdFe' clusters and metal adatoms on defective iron oxide to give the required metal-support interaction for the novel synthesis.