The catalytic activity and selectivity of two different water-soluble palladium nanoparticles capped with 5-(trimethylammonio)pentanethiolate and 6-(carboxylate)hexanethiolate ligands are investigated using the catalytic reaction of allyl benzene. The results show that the regioselective transformation of allyl benzene to 3-phenylpropanal occurs at room temperature and under atmospheric pressure in neat water via a Tsuji–Wacker type oxidation. Conventionally, the Tsuji–Wacker oxidation promotes the Markovnikov oxidation of terminal alkenes to their respective ketones in the presence of dioxygen. Water-soluble Pd nanoparticles, however, catalyze the anti-Markovnikov oxidation of allyl benzene to 3-phenylpropanal in up to 83% yields. Catalytic results of other aromatic alkenes suggest that the presence of benzylic hydrogen is a key to the formation of a p-allyl Pd intermediate and the anti-Markovnikov addition of H2O. The subsequent b-H elimination and tautomerization contribute to the formation of aldehyde products. Water-soluble Pd nanoparticles are characterized using nuclear magnetic resonance (NMR), UV–vis spectroscopy, thermogravimetric analysis (TGA), and transmission electron microscopy (TEM). Catalysis results are examined using 1H NMR and/or GC-MS analyses of isolated reaction mixtures.