Metalloenzyme-like metal–nitrogen–carbon (M–N–C) single-atom catalysts (SACs) have received increasing attention in the synthesis of fine chemicals because of the abundant atomic sites and versatile catalytic properties. However, the organic transformations with high atom efficiency over SACs in aqueous media were less investigated. Inspired by the hydrophobic pockets of the metalloenzyme, herein we introduced a hydrophobic, atomically dispersed Pd catalyst (Pd1–S–C) in the sulfur-doped carbon based on metal–sulfur coordination chemistry. This hydrophobic Pd-based SAC displayed satisfying catalytic performance for aqueous-phase semihydrogenation of terminal alkynes with high chemoselectivity, friendly substrate scope, and fairly good stability. Molecular dynamics simulations revealed that the hydrophobicity of the Pd1–S–C catalyst could contribute to accelerated reaction kinetics by enriching the organic alkynes around the catalytic sites in aqueous media. Furthermore, the electron-rich PdS4 single sites were demonstrated to promote activation of H2 molecules and desorption of CC intermediates, which outperformed the electron-deficient PdN4 single sites. The current work highlights the potential of enzyme-inspired hydrophobic SACs in the conversion of organic substrates in aqueous media.