Monodispersed Pd nanoparticles of 5 and 10 nm were obtained via reduction of Pd(acac)2 dissolved in ionic liquid (IL), [bmim][PF6], or [bmimOH][TF2N], supported on carbon nanofibers (CNF) anchored to sintered metal fibers (SMF). Using [bmimOH][TF2N], the monodispersed Pd nanoparticles were synthesized by simple heating in the absence of an additional reducing agent. The supported ionic liquid phase Pd nanoparticles on the structured CNF/SMF composites were tested for the selective hydrogenation of acetylene to ethylene and showed excellent long-term stability. The IL cation-anion network surrounding the nanoparticles suppressed the formation of active-site ensembles, known to catalyze the oligomerization of acetylene, responsible for the catalyst deactivation. The reaction rate was controlled by the internal diffusion of the reactants through the IL phase. The solubility of acetylene and ethylene in [bmim][PF6] was analyzed by NMR spectroscopy, which showed an order of magnitude difference. The lower solubility of ethylene compared to acetylene in the IL results in a high selectivity to ethylene, up to 85% at 150 °C. The catalytic system also demonstrated high efficiency and long-term stability without any deactivation in ethylene-rich feed (2 vol % of acetylene, 40 vol % of ethylene, 10 vol % of H2 in Ar), and therefore, the system shows promise for industrial application.