A series of Pd catalysts with different nanoparticle sizes encapsulated in Silicalite-1 (S-1) zeolite were synthesized using the one-step hydrothermal method to investigate the size dependence on methane catalytic oxidation. The obtained Pd nanoparticle (NP) sizes ranging from 1.8 to 3.2 nm were modulated by changing the addition of the ethylenediamine (EN) ligand during the synthesis process, and Pd/S-1-in-6EN (2.1 nm, the molar composition of 1 Pd:6 EN) displayed the remarkable catalytic performance. Meanwhile, long-term stability tests indicate the outstanding water resistance of Pd/S-1-in-6EN with a smaller particle size. According to the results of in situ CO-DRIFTS, a volcano-shaped curve between the fraction of the step site by size control of Pd nanoparticles and the catalytic performance was presented, and Pd/S-1-in-6EN possessed the optimum one. These allow the further study of the particle size effect on zeolite-confined noble metal catalysts for methane combustion.