Due to their stable catalytic properties graphene-encapsulated metal nanoparticles (NPs) have come into the focus of heterogeneous catalysis. Research on graphene’s atomic structure is a prerequisite for understanding and controlling catalytic processes; however, it is still at its very beginning considering metal NPs. This atomic-scale scanning tunnelling microscopy study documents preliminary growth stages and the structural properties of graphene on highly oriented pyrolytic graphite (HOPG) supported palladium NPs. It is shown that an annealing of the NPs at ∼650 °C in a few tens of Langmuir of ethylene (ethene) leads first to a carbon precursor structure covering the NP’s (111) facets. At higher ethylene exposures, the precursor structure turns into single-layer graphene encapsulating the NPs. Graphene-encapsulated palladium NPs with a size larger than ∼30 nm exhibit mostly one single and an almost defect-free graphene sheet on a facet. In most of the cases, such a perfect growth does not take place on the facets of smaller NPs where several graphene nanosheets and defects are generally observed.