Li–oxygen (Li-O₂) cathodes using palladium-coated and palladium-filled carbon nanotubes (CNTs) were investigated for their battery performance. The full discharge of batteries in the 2–4.5 V range showed 6-fold increase in the first discharge cycle of the Pd-filled over the pristine CNTs and 35% increase over their Pd-coated counterparts. The Pd-filled also exhibited improved cyclability with 58 full cycles of 500 mAh·g⁻¹ at current density of 250 mA·g⁻¹ versus 35 and 43 cycles for pristine and Pd-coated CNTs, respectively. In this work, the effect of encapsulating the Pd catalysts inside the CNTs proved to increase the stability of the electrolyte during both discharging and charging. Voltammetry, Raman spectroscopy, FTIR, XRD, UV/Vis spectroscopy and visual inspection of the discharge products using scanning electron microscopy confirmed the improved stability of the electrolyte due to this encapsulation and suggest that this approach could lead increasing the Li-O₂ battery capacity and cyclability performance.