The rapid development of catalytic membrane reactors requires materials with a higher permeability and a better mechanical stability than the current thick membranes. Pd-based composite membranes supported on porous stainless steel offer such an alternative. However commercially available porous stainless steel materials have to be further worked to reduce the surface pore sizes and ensure the formation of thin Pd films in an impervious form. In this work, a shot peening treatment was performed on the surface of a porous stainless steel to modify its surface pore size. Substrates with effectively reduced surface pore sizes were obtained under mild peening conditions. The permeation behavior of the substrates was examined using argon as the permeation gas. Impervious thin palladium films were deposited on the modified porous substrate surface by electroless plating. Hydrogen permeability through the resulting membranes was found to be comparable to that of pure palladium sheets, while the permeation flux was significantly enhanced due to the use of the thin Pd membrane.