We report the biosynthesis of size confined palladium nanoparticles (Pd-NPs). The 2–3 nm size Pd-NPs were grown in 12-mer protein stable protein 1 (SP1), which serves as a template for the NP formation. We further show that by controlling the protein expression levels in the cells we can alter the cells’ catalytic activity. The in vivo grown Pd-NPs were utilized in a hydrogenation reaction, converting acetylene feedstock into ethylene and ethane. The presented concept can be further used for a wide range of applications by exploiting the synergetic effect of the biotic elements with the abiotic ones.