Efficient storage of hydrogen for use in fuel cell-powered vehicles is a challenge that is being addressed in different ways, including adsorptive, compressive, and liquid storage approaches. In this paper we report on adsorptive storage in nanoporous carbon fibers in which palladium is incorporated prior to spinning and carbonization/activation of the fibers. Nanoparticles of Pd, when dispersed in activated carbon fibers (ACF), enhance the hydrogen storage capacity of ACF. The adsorption capacity of Pd-ACF increases with increasing temperature below 0.4 bar, and the trend reverses when the pressure increases. To understand the cause for such behavior, hydrogen uptake properties of Pd with different degrees of Pd-carbon contact (Pd deposited on carbon surface and Pd embedded in carbon matrix) are compared with Pd-sponge using in situ XRD under various hydrogen partial pressures (Rietveld refinement and profile analysis of diffraction patterns does not show any significant changes in carbon structure even under 10 bar H2. Pd forms β PdH0.67 under 10 bar H2, which transforms to α PdH0.02 as the hydrogen partial pressure is decreased. However, the equilibrium pressure of transition (corresponding to a 1:1 ratio of α and β phases) increases with increasing the extent of Pd-carbon contact. This pressure is higher for Pd embedded in carbon than for Pd deposited on carbon surface. Both these Pd-carbon materials have higher H2 desorption pressure than pure Pd, indicating that carbon “pumps out” hydrogen from PdHx and the pumping power depends on the extent of Pd-carbon contact. These results support the spillover mechanism (dissociative adsorption of H2 followed by surface diffusion of atomic H).