Gold and palladium nanoparticles were prepared by lithium borohydride reduction of the metal salt precursors in tetraalkylphosphonium halide ionic liquids in the absence of any organic solvents or external nanoparticle stabilizers. These colloidal suspensions remained stable and showed no nanoparticle agglomeration over many months. A combination of electrostatic interactions between the coordinatively unsaturated metal nanoparticle surface and the ionic-liquid anions, bolstered by steric protection offered by the bulky alkylated phosphonium cations, is likely to be the reason behind such stabilization. The halide anion strongly absorbs to the nanoparticle surface, leading to exceptional nanoparticle stability in halide ionic liquids; other tetraalkylphosphonium ionic liquids with non-coordinating anions, such as tosylate and hexafluorophosphate, show considerably lower affinities towards the stabilization of nanoparticles. Palladium nanoparticles stabilized in the tetraalkylphosphonium halide ionic liquid were stable, efficient, and recyclable catalysts for a variety of hydrogenation reactions at ambient pressures with sustained activity. Aerial oxidation of the metal nanoparticles occurred over time and was readily reversed by re-reduction of oxidized metal salts.