Palladium nanoparticles protected by polyvinylpyrrolidone (PVP) have been synthesized by the reduction-by-solvent method and deposited on alumina by impregnation. The prepared catalysts have been tested in the preferential oxidation of carbon monoxide (PrOx) in H2-rich gaseous streams and the results have been compared with catalysts prepared by conventional impregnation. Pd-nanoparticles protected by PVP have good activity and outstanding selectivity towards CO oxidation (above 50% in some cases). On the contrary, the impregnated catalyst has very low selectivity (about 10%). The influence of crucial parameters such as the capping agent-to-metal ratio or the synthesis temperature of the nanoparticles on the catalytic performance of the prepared materials has been analyzed. Our results show that within the 2.5–3.5nm region, particle size of supported nanoparticles does not seem to exert a significant influence on the studied reaction. However, the amount of capping agent seems to be crucial to prepare efficient, stable catalysts. The samples prepared show 100% CO removal at 180°C when tested in the presence of CO2 and water vapour.