Structural analysis of high Deuterium absorbed 5 nm Pd particles in dispersed ZrO2 has been carried out using XAFS techniques. X-ray absorption spectra around the Pd K-absorption edge were observed and analyzed. The PdPd bonding distance in the fcc Pd lattice was enlarged by 0.08 ∼ 0.09 Å during absorption of deuterium, and it completely reverted to its original state with the release of deuterium while maintaining the crystal lattice symmetry. These changes provide evidence that deuterium locates not on the surface of the Pd particle, but rather within the Pd crystal lattice. XANES spectra clearly indicate that any change in the oxidation state of Pd are not observed, resulting in no reaction of the absorbed Deuterium atoms with Pd atoms. This paper reports the alternation of Pd lattice in nano-sized composite during hydrogen absorption. The possible models of deuterium position in the Pd lattice are also discussed.