Dilute Pd-in-Au alloy catalysts are promising materials for selective hydrogenation catalysis. Extensive surface science studies have contributed mechanistic insight on the energetic aspect of hydrogen dissociation, migration, and recombination on dilute alloy systems. Yet, translating these fundamental concepts to the kinetics and free energy of hydrogen dissociation on nanoparticle catalysts operating at ambient pressures and temperatures remains challenging. Here, the effect of the Pd concentration and Pd ensemble size on the catalytic activity, apparent activation energy, and rate-limiting process is addressed by combining experiment and theory. Experiments in a flow reactor show that a compositional change from 4 to 8 atm% Pd of the Pd-in-Au alloy catalyst leads to a strong increase in activity, even exceeding the activity per Pd atom of monometallic Pd under the same conditions, albeit with an increase in apparent activation energy. First-principles calculations show that the rate and apparent activation enthalpy for HD exchange increase when increasing the Pd ensemble size from single Pd atoms to Pd trimers in a Au surface, suggesting that the ensemble size distribution shifts from mainly single Pd atoms on the 4 atm% Pd alloy to larger Pd ensembles of at least three atoms for the 8 atm% Pd/Au catalyst. The DFT studies also indicated that the rate-controlling process is different: H2 (D2) dissociation determines the rate for single atoms, whereas recombination of adsorbed H and D determines the rate on Pd trimers, similar to bulk Pd. Both experiment and theory suggest that the increased reaction rate with increasing Pd content and ensemble size stems from an entropic driving force. Finally, our results support hydrogen migration between Pd sites via Au and indicate that the dilute alloy design prevents the formation of subsurface hydrogen, which is crucial in achieving high selectivity in hydrogenation catalysis.