A method of producing acetaldehyde hydrogenates acetic acid in the presence of an iron oxide catalyst containing between 2.5 and 90 wt % Pd, more preferably 10 and 80 wt % Pd and most preferably 20 and 60 wt % Pd. The catalyst has a specific surface area of less than 150 m.sup.2 /g. Hydrogen and acetic acid are fed to a reactor in a hydrogen to acetic acid ratio of 2:1 to 25:1, more preferably in a hydrogen to acetic acid ratio of 3:1 to 15:1 and most preferably in a hydrogen to acetic acid ratio of 4:1 to 12:1. The hydrogenation is performed at a temperature of about 250.degree. C. to 400.degree. C., more preferably about 270.degree. C. to 350.degree. C. and most preferably about 280.degree. C. to 325.degree. C. The hydrogenation of acetic acid produces a partially gaseous product, and acetaldehyde is absorbed from the partially gaseous product with a solvent containing acetic acid. The gas remaining after the absorption step contains hydrogen, and this gas is recycled for the hydrogenation of acetic acid. The absorbed acetaldehyde is distilled to isolate same. After acetaldehyde is isolated from unreacted acetic acid and the other products via distillation, the unreacted acetic acid is separated from the other products using azeotropic distillation. Water is contained in the other products, and the azeotrope is an azeotrope of ethyl acetate and water. The unreacted acetic acid is separated in a column, and the column is controlled to contain an ethyl acetate rich azeotrope of ethyl acetate and water.