The reduction of [Pd(acac)(COD)]BF₄ (acac = acetylacetonate; COD = 1,5-cyclooctadiene), dissolved in BMI·BF₄, in the presence of P- or N-containing ionophilic ligands by H₂ yields “soluble” and stable [Pd(0)]_n nanoparticles (NPs). These ionic liquid soluble NPs are active and selective catalysts for the hydrogenation of 1,3-dienes and alkynes under mild reaction conditions. Selectivities up to 87% to cis-2-pentene and 95% conversion were obtained using Pd NPs modified with 1-(3-(diphenylphosphino)propyl)-2,3-dimethyl-1H-imidazol-3-ium N-bis(trifluoromethylsulfonyl)imide in 1-n-butyl-3-methylimidazolium tetrafluoroborate.