Nanoparticles (NPs) play a key role in heterogeneous catalysis due to their unique nanoscale effects, but their thermodynamic instability makes stabilizing small metal species challenging. Herein, we develop a series of Pd/xCeO2/SiO2 catalysts with a nanoisland architecture that enables precise control over Pd particle size and electronic properties via a confinement effect. CeO2 nanoparticles were first dispersed on a SiO2 support, followed by selective Pd deposition on the CeO2 surface through strong metal-support interactions and electron transfer between Pd and reducible CeO2. The resulting in situ-formed nanoisland structure enhances catalytic performance through optimized Pd-CeO2 synergy. In the double-bond migration (DBM) of 2-pentylidene cyclopentanone, a key step in fragrance synthesis, the Pd/7%CeO2/SiO2 catalyst achieved 90% isomerization selectivity at full conversion and a TOF of 26,000 h-1, 3-8 times higher than single-support catalysts. This catalyst has been successfully scaled up for the kiloton-scale annual production of methyl dihydrojasmonate, demonstrating the industrial relevance of this nanostructuring strategy.