A principal goal of organometallic chemistry is the catalytic synthesis of organic compounds by using the transition metal complex to perform distinct chemical reaction. Palladium-catalyzed allylic substitution with carbon nucleophiles constitutes one of the most important and useful carbon-carbon bond-forming reactions in organic synthesis. Since most chemical transformations of organic substrates are performed in organic solvents, in the laboratory as well in the industry, the substitution of organic solvents on both industrial and academic scales by water would be advantageous, this is due to the fact that water is safe, benign, non toxic, environmentally friendly, and cheap compared to organic solvents. Thus, development of atom-economical reactions in water is one of the most important goals of synthetic chemistry. Here we disclose a catalytic system for palladium-catalyzed allylic substitution of allyl alcohols with 1,3-diketones in water. A catalytic amount of carboxylic acid was needed as additive during the reaction.