The search for efficient nontoxic catalysts able to perform industrial hydrogenations is a topic of interest, transversal to many catalytic processes. This communication describes a mechanistic phenomenon of activation and spillover of hydrogen for remarkable selectivity of semi‐hydrogenation of acetylene over sub‐1 nm Pd nanoclusters confined within sodalite (SOD) zeolite (Pd@SOD). Specifically, hydrogen is dissociated on Pd nanoclusters forming hydrogen species (i.e., hydrogen atoms and hydroxyls) that spillovers onto SOD surfaces. The design and utilization of a small pore zeolite SOD (six‐membered ring with a 0.28×0.28 nm channel) is crucial, which only allows H2 diffusion into the channels to contact with the encapsulated Pd nanoclusters and thus avoid over‐hydrogenation to form ethane. Pd@SOD exhibits an ethylene selectivity over 94.5%, while that of conventional Pd/SOD is ~21.5%.