While precious metals are available to a very limited extent, there is an increasing demand to use them as catalyst. This is also true for palladium (Pd) catalysts and their sustainable recycling and production are required. Since Pd catalysts exist nowadays mostly under the form of nanoparticles, these particles need to be produced in an environment-friendly way. Biological synthesis of Pd nanoparticles (‘bio-Pd’) is an innovative method for both metal recovery and nanocatalyst synthesis. This review will discuss the different bio-Pd precipitating microorganisms, the applications of the catalyst (both for environmental purposes and in organic chemistry) and the state of the art of the reactors based on the bio-Pd concept. In addition, some main challenges are discussed, which need to be overcome in order to create a sustainable nanocatalyst. Finally, some outlooks for bio-Pd in environmental technology are presented.