The initial steps in the reduction of Ag+ ions by H-2 to produce metallic silver nanoparticles in silver cation-exchanged type A zeolite has been investigated in a novel way using inelastic neutron scattering (INS) to follow the reaction. The rotational tunneling excitations of the hydrogen adsorbed at low temperature were measured. The neutron scattering spectra show rotational tunneling peaks from the librational ground states of the adsorbed hydrogen. A transition at 0.3 meV is the lowest energy excitation ever observed for hydrogen adsorbed in a zeolite, and is characteristic of a sigma-bond complex between a metal center and molecular hydrogen. The transition is assigned to a chemisorption complex between molecular hydrogen and the Ag-3(2+) linear complex cation that has been proposed in X-ray diffraction studies of dehydrated Ag-A. Rotational tunneling peaks from H-2 molecules physisorbed on individual Ag+ ions located at different sites in the zeolite are also observed. Warming the sample allows the reduction reaction to proceed, causing the rotational tunneling peaks to decrease and disappear irreversibly. New INS features appear that are attributed to H-2 physisorbed on neutral Ag clusters. The results clearly demonstrate that the first step in the reduction of the silver is the formation of an intermediate [Ag32+...H2] complex rather than a dissociative adsorption of hydrogen, and that the reduction reaction proceeds via this complex.