Increasing the selectivity of the catalytic hydrogenation of alkynes to alkenes is of major importance for the processing of petrochemicals and the production of fine chemicals. Achieving high selectivity for alkene formation at high conversions, however, remains a long-standing challenge in heterogeneous catalysis. Here, the mechanism and origin of the high selectivity of dilute Pd-in-Au catalysts has been studied by a combination of first-principles calculations, microkinetic simulations, and isotopic exchange hydrogenation experiments using Pd0.04Au0.96 nanoparticles embedded in raspberry colloid-templated silica. The Pd is predominantly in the form of isolated atoms, only surrounded by Au atoms, based on prior studies. The simulations indicate that the rate-limiting process for 1-hexyne hydrogenation on Pd monomers in Au(111) is H2 dissociation, which has a large free energy barrier of 0.86 eV at 363 K and 0.2 bar of H2. The C–H bond formation steps, on the other hand, proceed with lower barriers, which contrasts with previous studies of extended Pd catalysts. The microkinetic simulations identify the sizable H2 dissociation barrier and the small barrier for the hydrogenation of 1-hexyne as key factors that lead to a high selectivity for the production of 1-hexene from 1-hexyne, even at high conversion. The unconventional H2 dissociation limiting process in combination with the low coverage of weakly bound hydrocarbon intermediates explains the near-zero order of 1-hexyne found experimentally. Furthermore, the partial hydrogenation of 1-hexyne to form 1-hexene is shown to be an irreversible process from our isotopic exchange hydrogenation experiments and is explained by the strongly exothermic nature of the reaction. Diluting active species, like Pd, in a less active host metal, like Au, hence appears promising as a means of tuning the binding energy of reactants and altering reaction profiles, leading to distinct kinetic behavior for an optimal catalytic activity and selectivity. The combination of microkinetic modeling, density functional theory calculations, and isotopic exchange experiments is thus demonstrated to be an effective approach to modeling important catalytic phenomena.