The ethanol oxidation reaction (EOR) is crucial in direct alcohol fuel cells and chemical production. However, the electro-oxidation of ethanol molecules to produce acetaldehyde and carbon monoxide can poison the active sites of nanocatalysts, resulting in reduced performance and posing challenges in achieving high activity and selectivity for ethanol oxidation. In this study, we employed a dynamic seed-mediated method to precisely modify highly dispersed Ru sites onto well-defined Pd nanocrystals. The oxyphilic Ru sites serve as “OH valves”, regulating water dissociation, while the surrounding Pd atomic arrangements control electronic states for the oxidation dehydrogenation of carbonaceous intermediates. Specifically, Ru0.040@Pd nanocubes (Ru:Pd = 0.04 at.%), featuring (100) facets in Ru-Pd4 configurations, demonstrate an outstanding mass activity of 6.53 A⋅mgPd−1A⋅mgPd−1 in EOR under alkaline conditions, which is 6.05 times higher than that of the commercial Pd/C catalyst (1.08 A⋅mgPd−1A⋅mgPd−1). Through in-situ experiments and theoretical investigations, we elucidate that the hydrophilic Ru atoms significantly promote the dynamic evolution of H2O dissociation into OHads species, while the electron redistribution from Ru to adjacent Pd concurrently adjusts the selective oxidation of C2 intermediates. This host–guest interaction accelerates the subsequent oxidation of carbonaceous intermediates (CH3COads) to acetate, while preventing the formation of toxic ⋆CHx and ⋆CO species, which constitutes the rate-determining step.