Traditionally partial sulfur-poisoned Pd is used to enhance selectivity in hydrogenation reactions. Herein, we report that this type of catalyst can also display ultraselective hydrodehydroxylation of the C–OH group, which is important in synthesizing biomass-based fine chemicals. A series of thiol (i.e., 4-fluorobenzenethiol, 2,3,4,5,6-pentafluorobenzenethiol, and 1-hexanethiol)-modified Pd catalysts were fabricated and showed a high yield of 5-methyl furfural product formed from 5-hydroxymethyl furfural in H2/H2O at 100 °C. Furthermore, the catalysts also exhibit excellent catalytic performance in hydrogenative ring-opening reactions of furan alcohols (i.e., 5-methylfuran alcohol and furan alcohol) to the corresponding ketones (i.e., 2,5-hexanedione and cyclopentanone, respectively). Elucidation of the catalytic mechanism indicates that H2 is heterolytically activated on Pd–S as a frustrated Lewis pair to form H––Pd–S–H3O+ via a water-mediated pathway, which can selectively dehydroxylate the C–OH group and substantially promote these bifunctional catalytic reactions at the lowest reaction temperature compared to the literature. This study presents exciting bifunctional catalysis for challenging substrates by generating a transient H+–H– pair using thiol-modified metal catalysts in water.