Metal nanoparticles were successfully synthesized from the self-regulated reduction of hydroxylated ionic liquids in aqueous phase without additives. A new water-phase synthesis of gold and palladium nanoparticles using N-(2-hydroxyethyl)-N-methylmorpholinium tetrafluoroborate is described. Transmission electron microscopy was performed to characterize the metal nanoparticles. The average sizes of the gold and palladium nanoparticles were 4.3 nm and 3.2 nm, respectively. Hydroxylated ionic liquids served as both reductants and protective agents, significantly simplifying the preparation of nanoparticles. The produced particles were highly crystalline in structure with a face-centered cubic (fcc) lattice. Finally, we showed preliminary results that suggest different hydroxylated ionic liquids can also be used to prepare various metal nanoparticles.