Pd nanoparticles (NPs) with a small size and narrow size distribution were prepared from the decomposition of Pd(OAc)(2) in a series of hydroxyl-functionalized ionic liquids (ILs) comprising the 1-(2'-hydroxylethyl)-3-methylimidazolium cation and various anions, viz. [C(2)OHmim][OTf] (2.4 +/- 0.5 nm), [C(2)OHmim][TFA] (2.3 +/- 0.4 nm), [C(2)OHmim][BF4] (3.3 +/- 0.6 nm), [C(2)OHmim][PF6] (3.1 +/- 0.7 nm) and [C(2)OHmim][Tf2N] (4.0 +/- 0.6 nm). Compared with Pd NPs isolated from the non-functionalized IL, [C(4)mim][Tf2N] (6.2 +/- 1.1 nm), it would appear that the hydroxyl group accelerates the formation of the NPs, and also helps to protect the NPs from oxidation once formed. Based on the amount of Pd(OAc) 2 that remains after NP synthesis (under the given conditions) the ease of formation of the Pd NPs in the C(2)OHmim-based ILs follows the trend Tf2N , PF6 > BF4 > OTf > TFA. Also, the ability of the [C2OHmim]+-based ILs to prevent the Pd NPs from undergoing oxidation follows the trend Tf2N > PF6 > TFA > OTf > BF4. DFT calculations were employed to rationalize the interactions between Pd NPs and the C(2)OHmim cation and the various anions.