The nature of the active sites for palladium supported on nitrogen doped carbon nanofibers (Pd/N-CNFs) catalysts for selective hydrogenation of acetylene to ethylene was examined. Palladium concentrations of 0.05–0.6 wt% were deposited on carbon nanofibers doped by nitrogen atoms (N-CNFs) and characterized by transmission electron microscopy (TEM), CO chemisorption, X-ray photoelectron spectroscopy (XPS), Extended X-ray Absorption Fine Structure (EXAFS) and quantum-chemical calculations. The data indicates that the Pd initially forms highly-dispersed particles. However, decreasing of the Pd concentration on the carbon nanofibers doped by nitrogen atoms below 0.15 wt% led to stabilization of the metal in the atomic state. Porphyrin-like defects with four nitrogen atoms are formed on the surface of the CNFs and strongly interact with palladium atoms, and thus can be sites for stabilization of atomic Pd. The catalytic activity and selectivity of Pd/N-CNFs catalysts depend on the ratio of these two palladium states.