Ag-Pd bimetallic nanoparticles were prepared directly in ultrathin TiO2-gel films by a stepwise ion-exchange/reduction approach. Ion-exchange sites were created in ultrathin films using Mg2+ ions as template. Ag+ ion was then incorporated by ion exchange, and converted into metallic nanoparticles by low-temperature H-2 plasma, regenerating ion-exchange sites. The same procedure was then carried out for Pd2+ ion, producing Pd-on-Ag bimetallic nanoparticles, as TEM observation and plasmon resonance absorption indicate. By contrast, reversed metal incorporation procedure appeared to give a mixture of individual Ag and Pd nanoparticles, as confirmed by TEM, absorption spectroscopy and X-ray photoelectron spectroscopy. For hydrogenation of methyl acrylate, the catalytic activity of the Pd-on-Ag nanoparticle is 367 times as large as that of commercial Pd black and 1.6 times as large as that of Pd monometallic nanoparticle. The outstanding catalytic activity was explicable by the large fraction of the surface-exposed Pd atoms. The formation process of the bimetallic nanoparticle and their general morphological feature are discussed.