Chemical functionalization of the boron nitride nanotube (BNNT) allows a wider flexibility in engineering its electronic and magnetic properties as well as chemical reactivity, thus making it have potential applications in many fields. In the present work, the encapsulation of 13 different Pd(3)M (M = Sc, Ti, V, Cr, Mn, Fe, Co, Ni, Cu, Zn, Pd, Pt, and Au) clusters inside the (10, 0) BNNT has been studied by performing comprehensive density functional theory (DFT) calculations. Particular attention is paid to searching for the stable configurations, calculating the corresponding binding energies, and evaluating the effects of the encapsulation of Pd(3)M cluster on the electronic and magnetic properties of BNNT. The results indicate that all the studied Pd(3)M clusters can be stably encapsulated inside the (10, 0) BNNT, with binding energies ranging from -0.96 (for Pd(3)Sc) to -5.31 eV (for Pd(3)V). Moreover, due to a certain amount of charge transfer from Pd(3)M clusters to BNNT, certain impurity states are induced within the band gap of pristine BNNT, leading to the reduction of the band gap in various ways. Most Pd(3)M@BNNT nanocomposites exhibit nonzero magnetic moments, which mainly originate from the contribution of the Pd(3)M clusters. In particular, the adsorption of O(2) molecule on BNNT is greatly enhanced due to Pd(3)M encapsulation. The elongation of O-O bonds of the adsorbed O(2) molecules indicates that Pd(3)M@BNNT could be used to fabricate the oxidative catalysis.