The hydrogen absorption and diffusion processes in cube-shaped palladium (Pd) nanoparticles (NPs) were studied by the combination of ambient-pressure X-ray photoelectron spectroscopy (AP-XPS) and density functional theory (DFT) calculations. A size dependence of the subsurface hydrogen absorption was observed. More hydrogen atoms were absorbed in the subsurface of the smaller-sized Pd NPs owing to the enhancement of the diffusivity of H atoms from the surface into the subsurface rather than the adsorption or absorption rates at the initial stages. This results from the weakened Pd-H bond caused by surface disordering of Pd NPs with the reduction of the size of the particles. Furthermore, we discuss the H absorption sites in the bulk by comparing the relative Pd 3d core-level binding energy shifts of the Pd atoms obtained from the AP-XPS results and the theoretical calculations. The octahedral (O) sites are shown to be more favorable than the tetrahedral (T) sites for hydrogen occupation by comparing the experimental results and theoretical calculations. Finally, we proposed an interaction model between hydrogen and the Pd NPs during H2 absorption and diffusion to provide new insights into the hydrogen absorption process.