A method for immobilization of palladium nanoparticles in magnetically separable polymeric nanocapsules is presented. The method is based on co-encapsulation of palladium nanoparticles stabilized by hyperbranched polyamidoamine (H-PAMAM-C₁₅) modified with palmitoyl groups and hydrophobic magnetite nanoparticles within polyurea nanospheres. The synthesis of these polyurea nanospheres is based on nanoemulsification of chloroform, containing magnetic nanoparticles and palladium acetate, in water using suitable surfactants or dispersants. Then, the chloroform nano-droplets are confined in a polyurea shell formed by interfacial polycondensation between isocyanate and amine monomers. The palladium acetate was reduced with hydrogen to create palladium nanoparticles dispersed in the core of the polyurea nanocapsules. These catalytic polymeric nanoreactors were utilized in hydrogenation of alkenes and alkynes in water. The nanoreactors were easily separated from the reaction mixture via application of external magnetic field. The recyclability of these nanoreactors was examined in hydrogenation of styrene; no significant change was observed in their reactivity for up to four cycles.