Incorporating oxophilic metals into noble metal-based catalysts represents an emerging strategy to improve the catalytic performance of electrocatalysts in fuel cells. However, effects of the distance between the noble metal and oxophilic metal active sites on the catalytic performance have rarely been investigated. Herein, we report on ultrasmall (∼5 nm) Pd–Ni–P ternary nanoparticles for ethanol electrooxidation. The activity is improved up to 4.95 A per mgPd, which is 6.88 times higher than commercial Pd/C (0.72 A per mgPd), by shortening the distance between Pd and Ni active sites, achieved through shape transformation from Pd/Ni–P heterodimers into Pd–Ni–P nanoparticles and tuning the Ni/Pd atomic ratio to 1:1. Density functional theory calculations reveal that the improved activity and stability stems from the promoted production of free OH radicals (on Ni active sites) which facilitate the oxidative removal of carbonaceous poison and combination with CH3CO radicals on adjacent Pd active sites.