Well-dispersed and ultrasmall Pd clusters in nanosized silicalite-1 (MFI) zeolite have been prepared under direct hydrothermal conditions using [Pd(NH2CH2CH2NH2)2]Cl2 as precursor. High-resolution scanning transmission electron microscopy studies indicate that the Pd clusters are encapsulated within the intersectional channels of MFI, and the Pd clusters in adjacent channels visually aggregate, forming nanoparticles (NPs) of ∼1.8 nm. The resultant catalysts show an excellent activity and highly efficient H2 generation toward the complete decomposition of formic acid (FA) under mild conditions. Notably, thanks to the further reduced Pd NP size (∼1.5 nm) and the additionally introduced basic sites, the Pd/S-1-in-K catalyst affords turnover frequency values up to 856 h(-1) at 25 °C and 3027 h(-1) at 50 °C. The easy in situ confinement synthesis of metal clusters in zeolites endows the catalysts with superior catalytic activities, excellent recyclability, and high thermal stability, thus opening new perspectives for the practical application of FA as a viable and effective H2 storage material for use in fuel cells.