Nanosizing can dramatically alter material properties by enhancing surface thermodynamic contributions, shortening diffusion lengths, and increasing the number of catalytically active sites per unit volume. These mechanisms have been used to explain the improved properties of catalysts, battery materials, plasmonic materials, etc. Here we show that Pd nanoparticles also have the ability to self-heal defects in their crystal structures. Using Bragg coherent diffractive imaging, we image dislocations nucleated deep in a Pd nanoparticle during the forward hydriding phase transformation that heal during the reverse transformation, despite the region surrounding the dislocations remaining in the hydrogen-poor phase. We show that defective Pd nanoparticles exhibit sloped isotherms, indicating that defects act as additional barriers to the phase transformation. Our results resolve the formation and healing of structural defects during phase transformations at the single nanoparticle level and offer an additional perspective as to how and why nanoparticles differ from their bulk counterparts.