The single‐step syngas‐to‐dimethyl ether (STD) process entails economic and technical advantages over the current industrial two‐step process. Pd/ZnO‐based catalysts have recently emerged as interesting alternatives to currently used Cu/ZnO/Al2O3 catalysts, but the nature of the active site(s), the reaction mechanism, and the role of Pd and ZnO in the solid catalyst are not well established. Now, Zn‐stabilized Pd colloids with a size of 2 nm served as the key building blocks for the methanol active component in bifunctional Pd/ZnO‐γ‐Al2O3 catalysts. The catalysts were characterized by combining high‐pressure operando X‐ray absorption spectroscopy and DFT calculations. The enhanced stability, longevity, and high dimethyl ether selectivity observed makes Pd/ZnO‐γ‐Al2O3 an effective alternative system for the STD process compared to Cu/ZnO/γ‐Al2O3.