The nucleation, distribution, composition, and structure of Pd nanocrystals in SiO ₂ multilayers containing Ge, Si, and Pd are studied using high resolution transmission electron microscopy (HRTEM) and x-ray photoelectron spectroscopy (XPS), before and after heat treatment. The Pd nanocrystals in the as deposited sample (sample ASD) seem to be capped by a layer of PdO _x . A 1–2 eV shift in binding energy was found for the Pd-3d XPS peak, due to initial state Pd to O charge transfer in this layer. The heat treatment results in a decomposition of PdO and Pd into pure Pd nanocrystals and SiO _x .