A Pd grating of periodicity of 1.5 μm comprising of 1 μm wide nanocrystalline Pd lines has been obtained by a direct micromolding method to serve as Hydrogen sensor element in an optical diffraction set up. The device uses a low power diode laser and a photodetector and works with sensitivity of ∼20%. The hydrogen sensing action is based on monitoring the changes in the diffraction efficiency (DE) which is defined as the ratio of the first and the zeroth order diffracted beam intensities. The diffraction efficiency undergoes large and sudden changes as the nanocrystalline grating becomes disordered due to PdH x formation, as monitored using in-situ microscopy and optical profilometric measurements. This is truly a low cost, portable hydrogen sensor meant for large installations. © 2012, Hydrogen Energy Publications, LLC. Published by Elsevier Ltd. All rights reserved.