The influence of particle size in the carbon monoxide hydrogenation reaction has been studied using cobalt nanoparticles (NPs) with narrow size distribution prepared from colloidal chemistry. The surfactant covering the NPs after synthesis could be removed by heating to 200-270 degrees C in H-2. Soft X-ray absorption spectroscopy was performed using a gas flow cell under reaction conditions of H-2 and CO at atmospheric pressure. Flow of pure hydrogen at 350 degrees C removed the protecting surfactant layer and reduced the NPs from oxidized to metallic. The NPs remained metallic during the methanation reaction with their surface covered by CO. The methanation turnover frequency of silica-supported NPs was found to decrease with diameter below 10 nm, whereas the reaction activation energy was found to be independent of NP size. H-D exchange experiments indicated that it is the dissociation of H-2 that is responsible for the observed decrease in activity with size.