This report describes a two-phase synthesis of water-soluble carboxylate-functionalized alkanethiolate-capped Pd nanoparticles from ω-carboxyl-S-alkanethiosulfate sodium salts. The two-phase methodology using the thiosulfate ligand passivation protocol allowed a highly specific control over the surface ligand coverage of these nanoparticles, which are lost in a one-phase aqueous system because of the base-catalyzed hydrolysis of thiosulfate to thiolate. Systematic synthetic variations investigated in this study included the concentration of ω-carboxyl-S-alkanethiosulfate ligand precursors and reducing agent, NaBH4, and the overall ligand chain length. The resulting water-soluble Pd nanoparticles were isolated and characterized by transmission electron microscopy (TEM), thermogravimetric analysis (TGA), 1H NMR, UV–vis, and FT-IR spectroscopy. Among different variations, a decrease in the molar equivalent of NaBH4 resulted in a reduction in the surface ligand density while maintaining a similar particle core size. Additionally, reducing the chain length of the thiosulfate ligand precursor also led to the formation of stable nanoparticles with a lower surface coverage. Since the metal core size of these Pd nanoparticle variations remained quite consistent, direct correlation studies between ligand properties and catalytic activities against hydrogenation/isomerization of allyl alcohol could be performed. Briefly, Pd nanoparticles dissolved in water favored the hydrogenation of allyl alcohol to 1-propanol whereas Pd nanoparticles heterogeneously dispersed in chloroform exhibited a rather high selectivity towards the isomerization product (propanal). The results suggested that the surrounding ligand environments, such as the ligand structure, conformation, and surface coverage, were crucial in determining the overall activity and selectivity of the Pd nanoparticle catalysts.