The hydrogen storage capacity of Pd nanoparticles (NPs) decreases as the particles become smaller; however, this reduced capacity is ameliorated by addition of Pt. In the present work, the hydrogen storage mechanism and structural transformations of core (Pd)-shell (Pt) (CS) and solid-solution (SS) NPs during hydrogen absorption and desorption (PHAD) processes are investigated. In situ X-ray absorption spectroscopy measurements were performed to study the evolution of electronic and local structures around Pd and Pt during PHAD. Under ambient conditions, Pd and Pt have distinct local structures. The Pd atomic pairs are more strained in CS NPs than in SS NPs. A similar behavior has been seen in CS NPs after PHAD. The Pd K-edge extended X-ray absorption fine structure data indicate that in CS and SS NPs a substantial fraction of the signal derives from Pd-Pd atomic pairs, indicating that Pd clusters remain present even after PHAD. PHAD causes a rearrangement of the interfacial structure, which becomes homogeneously distributed. The higher coverage of active bimetallic sites results in a higher observed hydrogen storage capacity in the SS phase.