There is a great deal of interest in ultra-fine grained and nanocrystalline microstructure as a means of achieving enhanced strengths and interesting combinations of properties. Thin Pd-capped rare-earth metallic films switch reversibly from their initial reflecting state (metal phase) to visually transparent state (insulator or semiconductor phase) when exposed to gaseous hydrogen. Reversion to the reflecting state is achieved by exposure to air. Palladium-capped nanocrystalline gadolinium films with different grain sizes were prepared by rf-sputtering technique. Exposure of these metallic films to hydrogen resulted in formation of hydrides and increased disorder. The microstructure of the nc-Gd films were characterized by in-situ X-ray-diffraction studies during hydrogen loading. The grain size, the microstrain, and the lattice parameters were determined.