His first writings were printed in the Revista Europea. These were pungent essays, remarkable for independent judgment and refined humour, and found so much favor with the public that the young beginner was soon appointed editor of the Revista. The best of his critical work is collected in Los Oradores del Ateneo (1878), Los Novelistas españoles (1878), Nuevo viaje al Parnaso and La Literatura en 1881 (1882), this last being written in collaboration with Leopoldo Alas.
In 1881 he published a novel, El señorito Octavio, which shows an uncommon power of observation, and the optimistic promise of better things to come. In Marta y Maria (1883), a portrayal of the struggle between religious vocation and earthly passion, somewhat in the manner of Valera, Palacio Valdés achieved a very popular triumph which placed him in the first rank of contemporary Spanish novelists.
EL Idilio de un enfermo (1884), a most interesting fragment of autobiography, has scarcely met with the recognition which it deserves: perhaps because the pathos of the story is too unadorned. The publication of Peredas Sotileza is doubtless responsible for the conception of José (1885), in which Palacio Valdés gives a realistic picture of the manners and customs of seafaring folk, creates the two convincing characters whom he names José and Leonarda, and embellishes the whole with passages of animated description barely inferior to the finest penned by Pereda himself.
A collection of his short stories appeared in English translation in 1935.