We report the controlled synthesis of small palladium nanoparticles (PdNPs) with narrow particle size distribution (1.8 ± 0.2 nm) using an organic molecular cage as a template. The well-defined cage structure and thioether anchoring groups inside the cavity are critical for the formation of narrowly distributed PdNPs, offering a confined organic molecular environment and guiding PdNP nucleation and growth. The resulting encapsulated PdNPs are resistant to agglomeration and stable in solution exposed to air at room temperature. When provided with a protective cage shell with minimum surface coverage, such PdNPs are capable of catalyzing organic reactions, showing high catalytic activity in Suzuki-Miyaura coupling reactions.