Pristine and Pd-decorated two-dimensional (2D) ZnO nanosheets were used for hydrogen detection. The 2D ZnO nanosheets were prepared through a facile hydrothermal method, and Pd-decoration was carried out using UV irradiation. Formation of ZnO nanosheets with the desired morphology, chemical composition, and crystallinity was demonstrated through different characterization techniques. In particular, the thickness of each ZnO nanosheet was approximately 1 nm, corresponding to a few atomic layers. Sensing studies on hydrogen gas revealed the positive effects of Pd-decoration on response, sensing temperature, and selectivity. The Pd-decorated nanosheet sensor successfully sensed the low concentrations of hydrogen gas. Moreover, the gas sensor was able to detect hydrogen in a gaseous mixture with benzene. Moreover, a mixture of H2 and interfering gas exhibited a noticeable detection, exhibiting higher and lower responses than pure interfering gas and pure H2 gas, respectively. Gas sensing experiments in self-heating mode were conducted and showed that the optimal voltage for self-heating operation decreased from 20 to 5 V after Pd-decoration. At a low temperature, Pd-decorated ultrathin ZnO nanosheets showed the p-type sensing, presumably from the combined effects of enhanced oxygen adsorption and ZnO-to-Pd electron transfer. In addition, we examined the flexibility by means of bending, tilting, and stretching tests. Sensing enhancement of the Pd-decorated sensor originates from the presence of Pd–ZnO heterojunctions, formation of PdHx, and the high catalytic activity of Pd.