A novel synthetic route has been developed for the preparation of clay intercalated palladium catalysts, Liquid sorption and X-ray diffraction measurements on ethanol(1)-toluene(2)/hexadecylammonium montmorillonite dispersions indicated that a toluene-rich bulk liquid phase was equilibrated with a swollen, ethanol-rich interlamellar phase having a volume of about 0.9 cm(3)/g organoclay. Introduction of palladium(II) acetate into the organoclay suspension led to the generation and deposition of a metallic palladium dispersion in the interlamellar space. This system behaved as a versatile nanophase reactor, wherein the ethanol functioned as both solvent and reducing agent. The progress of the Pd2+ --> Pd-0 reaction was monitored spectrophotometrically. The ethanolic reduction afforded Pd particles 2 to 14 nm in diameter, depending on the experimental conditions, deposited on clay particle defect sites, Organoclays loaded up to 10 mass% Pd were synthesized and characterized by BET surface area analysis, transmission electron microscopy, low-shear rheology, X-ray diffraction, and small-angle Xray scattering measurements, The Pd-organoclay samples proved to be catalytically active in olefin hydrogenation in the liquid phase.