The synthesis, characterization, and magnetic properties. of water-soluble Pd nanoparticles capped with glutathione are described. The glutathione-capped Pd nanoparticles were synthesized under argon and air atmospheres at room temperature. Whereas the former exhibits a bulklike lattice.. parameter, the lattice parameter of the latter is found to be considerably greater, indicating anomalous lattice expansion. Comparative structural and compositional studies of these nanoparticles suggest the presence of oxygen, in the core: lattice when Pd nanoparticles are prepared under an air atmosphere. Both Pd nanoparticles prepared under argon and air show ferromagnetism at 5 K, but the latter exhibits significantly greater coercivity (88 Oe) and magnetization (0.09 emu/g at 50 kOe). The enhanced ferromagnetic properties are explained by the electronic effect of the incorporated Oxygen that increases the 4d density of holes at the Pd site and localizes magnetic moments.