Diphenylacetylene (DPA) is a precursor of stilbene and benzil, and reduction of DPA or its derivatives with metallic reagents is both an old and contemporary topic of research. By means of density function theory (DFT) calculations, a detailed investigation of the mechanism of the hydrogenation of DPA over Pd clusters was carried out at the molecular level. The various species structures in the hydrogenation of DPA over Pd clusters were optimized and analyzed. The calculations indicate that the reactions over different Pd clusters share similar reaction mechanisms, and the entire reaction path could be divided into approximately two stages: stage 1: the hydrogenation of DPA to stilbene by the addition of one hydrogen molecule; and stage 2: the hydrogenation of stilbene to the final product diphenylethane (DPE) with the recovery of the catalyst. The Pd2- and Pd3-catalyzed systems exhibit the smallest rate-determining step (RDS) energy barrier, and these systems might be the most active and effective catalytic species among the Pd clusters. Although the Pd clusters used in the current work are simple systems, these clusters could eventually provide insights into the specific structure of the Pd catalyst, since Pd and/or clusters and/or nanoparticles could be envisioned as active catalysts in experiments.