Submicron-thick Pd-Ag alloy membranes, prepared on 4 nm pore gamma -alumina support by magnetron sputter deposition, are nanocrystalline with a grain (crystallite) size of about 20 nm. The membranes show good selectivity for hydrogen over helium (about 4000 at 300 degreesC). Hydrogen permeation is dominated by the surface reaction steps in 100-200 degreesC with an activation energy of about 30 kJ/mol. Bulk diffusion resistance becomes important at higher temperatures (> 200 degreesC). Grain size is the most critical parameter affecting the hydrogen permeance of the thin nanostructued Pd-Ag membranes. Increase in Pd-Ag grain size from about 20 to 60 nm results in a substantial improvement in hydrogen permeance with a higher apparent activation energy in 100-300 degreesC. Grain growth appears to increase the hydrogen permeability in the bulk phase of the Pd-Ag membranes. Helium permeance through the grain boundary decreases with increasing temperature or hydrogen partial pressure due to grain expansion. Carbonation and the accompanied grain expansion have detrimental effects on the perm-selectivity of the Pd-Ag membranes.