The sensing response of thin film sensors loaded with Pd nanoparticles is studied for gas. Nanoparticles of Pd catalyst of varying size (2–6 nm) are synthesized using chemical route with different concentrations of polyvinyl pyrollidone (PVP) as a stabilizing agent and dispersed over the surface of thin film deposited by rf magnetron sputtering technique. The sensing response of all prepared sensors was recorded over a temperature range of 50–200. The effect of PVP used for synthesis of Pd nanoparticles has been studied on the sensing response characteristics of sensors. The optimized sensor structure was found to exhibit a higher response at a relatively low operating temperature (150) with fast response time for 500 ppm gas. The origin of enhanced sensing response is identified in the light of the interaction of PVP with Pd nanoparticles besides the spill over of gas molecules on the uncovered surface of thin film.