Palladium nanoparticles (5.3 +/- 1.4 nm) catalyze the reduction of hexacyanoferrate(III) ions with hydrogen in aqueous solution. The reaction rate substantially (approximately 6-fold) increases if the nanoparticles are pre-saturated with hydrogen. The difference between the electronic properties of hydrogenated and non-hydrogenated palladium particles determines their activity in dissociation of the hydrogen molecule into atoms.