Palladium bionanomaterial was manufactured using the sulfate-reducing bacterium, Desulfovibrio desulfuricansm, to reduce soluble Pd(II) ions to cell-bound Pd(0) in the presence of hydrogen. The biomaterial was examined using a Superconducting Quantum Interference Device (SQUID) to measure bulk magnetisation and by Muon Spin Rotation Spectroscopy (A mu SR) which is uniquely able to probe the local magnetic environment inside the sample. Results showed behaviour attributable to interaction of muons both with palladium electrons and the nuclei of hydrogen trapped in the particles during manufacture. Electronic magnetism, also suggested by SQUID, is not characteristic of bulk palladium and is consistent with the presence of nanoparticles previously seen in electron micrographs. We show the first use of mu SR as a tool to probe the internal magnetic environment of a biologically-derived nanocatalyst material.