Formation of nanocrystalline solid solution induced by ball milling and/or subsequent annealing of the Pd3Zr intermetallic compound was studied. The single phase initial compound was milled in a medium energy vibrating mill under vacuum for various time periods. The structural characterization was made by X-ray diffraction with monochromatic CuKalpha1 radiation. After a short milling time (46 h) the Pd3Zr compound transformed to nanocrystalline one without disordering. By annealing this ball milled material, the formation of Pd(Zr) solid solution was observed by X-ray diffraction. During heat treatment at increasing temperatures the phase fraction of Pd(Zr) reached a maximum between 800 and 900 degreesC, then it decreased and finally the reflections of disordered phase disappeared from XRD spectrum at 1330 degreesC indicating the return to the single phase ordered state. However, while the above results are in accordance with that of Weissmuller and Ehrhardt [1], we also observed that ball milling of Pd3Zr for longer periods resulted in direct transformation of increasing fraction of the ordered phase to nanocrystalline Pd(Zr) solid solution. The amount of this phase increased with milling time and with annealing temperature, and the disordered state proved to be metastable even at high temperatures. The stabilization of solid solution phase is explained by the segregation at grain boundaries of the nanocrystalline material and by oxidation at interfaces/grain boundaries during the preparation and annealing processes.