The water-soluble metal nanoparticles (NPs) stabilized by poly(N-vinyl-2-pyrrolidone) (PVP) were prepared and examined as catalysts for the one-step selective hydrogenation of phenol to cyclohexanone in water. More than 99% conversion of phenol and selectivity to cyclohexanone was obtained at 90 °C and 1 atm H₂ for 16 h over “soluble” Pd NPs that were reduced by NaBH₄ and stabilized by PVP. These Pd NPs were stable, and no leaching or aggregation was detected after five successive runs, showing their advantage for catalyzing the efficient synthesis of cyclohexanone via the one-step selective hydrogenation of phenol under mild conditions.