The synthesis of highly stable ultrasmall monodisperse populations of palladium nanoparticles in the range of 1-3 nm in size was achieved via polyol reduction within 1,2-dioleoyl-sn-glycero-3-phosphor-rac-(1-glycerol) liposomal nanoreactors exploiting glycerol as both reducing and stabilizing agent. The liposome-based green method was compared with synthesis in solution, and the reducing agent concentration and the lipidic composition of the liposomal nanoreactors were demonstrated to have a strong effect on the final size and homogeneity of the palladium nanoparticles. Glycerol molecules acting as capping agent demonstrated the ability to stabilize the palladium nanoparticles over a long period of time, maintaining their homogeneity in size and shape. The obtained palladium nanoparticles were characterized using transmission electron microscopy, selected area electron diffraction, Fourier transform infrared and Raman spectroscopies, X-ray diffraction, and dynamic light scattering to determine their morphology, size, charge, surface chemistry, and crystal structure. The catalytic activity of the palladium nanoparticles was also tested for a reduction reaction.