Palladium metal supported on gold in the form of surface ensembles have enhanced catalytic properties compared to monometallic Pd, as exemplified by Pd-decorated Au nanoparticles (Pd-on-Au NPs) for various room-temperature reactions. Whereas the catalytic properties and nanostructure of Pd-on-Au NPs are not known at higher temperatures, this work focuses on thermal annealing effects on the Pd-on-Au NP nanostructure, bimetal distribution, and room-temperature water-phase trichloroethene hydrodechlorination (TCE HDC) as the model reaction. Analysis of the average coordination environment of Pd and Au atoms through x-ray absorption spectroscopy showed that as-synthesized Pd-on-Au NPs transitioned from a Au core/Pd shell structure to Au-rich core/PdAu surface alloy or PdAu mixed alloy structures depending on the Pd surface coverage (30–150 sc%) and annealing temperature (100–400 °C). The HDC activity strongly correlated with Pd ensemble size, where the as-formed Pd islands exhibited one order of magnitude enhanced activity compared to monometallic Pd. Higher annealing temperatures led to a surface/mixed alloy structure with smaller Pd ensemble size, resulting in lower activity but still ∼3 times more active than monometallic Pd. These results illustrate the importance of catalyst structure on activity and the usefulness of metal-decorated metal catalysts for higher-temperature reactions.