Using a magnetron sputtering approach that allows size-controlled formation of nanoclusters, we have created palladium nanoclusters that combine the features of both heterogeneous and homogeneous catalysts. Here we report the atomic structures and electronic environments of a series of metal nanoclusters in ionic liquids at different stages of formation, leading to the discovery of Pd nanoclusters with a core of ca. 2 nm surrounded by a diffuse dynamic shell of atoms in [C4C1Im][NTf2]. Comparison of the catalytic activity of Pd nanoclusters in alkene cyclopropanation reveals that the atomically dynamic surface is critically important, increasing the activity by a factor of ca. 2 when compared to compact nanoclusters of similar size. Catalyst poisoning tests using mercury and dibenzo[a,e]cyclooctene show that dynamic Pd nanoclusters maintain their catalytic activity, which demonstrate their combined features of homogeneous and heterogeneous catalysts within the same material. Additionally, kinetic studies of cyclopropanation of alkenes mediated by the dynamic Pd nanoclusters reveal an observed catalyst order of 1, underpinning the pseudo-homogeneous character of the dynamic Pd nanoclusters.