Simultaneous high activity and selectivity are highly desired in heterogeneous catalysis of various important organic intermediate compounds. In the present investigation, we realized ultra-high selective hydrogenation of quinoline to 1,2,3,4-tetrahydroquinoline (py-THQ) under atmospheric conditions by encapsulating 7 +/- 2 nm Pd nanoparticles (PdNPs) inside the 10 +/- 2 nm nanochannels of carbon nanotubes (CNTs). For the prepared Pd@CNTs catalysts, the encapsulated PdNPs was found to selectively absorb the nitrogen heterocyclic ring of quinoline, which led to the increase of average length of C-C bonds in the heterocyclic ring, further resulting in selective activation of the heterocyclic ring and similar to 100% selectivity to py-THQ. The DFT calculations confirmed the selective hydrogenation feature of Pd@CNTs. In contrast, the Pd-CNTs catalyst with PdNPs supported on the outer surface of CNTs is incapable of selectively activate the heterocyclic ring of quinoline, showing poor selectivity and catalytic activity. The Pd@CNTs catalysts also exhibited universal ultra-high selectivity to other quinoline derivatives (7-Methylquinoline, quinaldine and quinoxaline) and oxygen heterocyclic compounds (2,3-benzofuran). Due to the confined effect, the Pd@CNTs catalysts presented superior cycling stability to the Pd-CNTs and activated carbon (AC) impregnated with Pd (Pd-AC) catalysts. The Pd@CNTs catalyst was also found to highly stable in air storage for months, without loss of activity.