Since its discovery in 1938, hydroformylation has been thoroughly investigated and broadly applied in industry (>107 metric ton yearly). However, the ability to precisely control its regioselectivity with well-established Rh- or Co-catalysts has thus far proven elusive, thereby limiting access to many synthetically valuable aldehydes. Pd-catalysts represent an appealing alternative, yet their use remains sparse due to undesired side-processes. Here, we report a highly selective and exceptionally active catalyst system that is driven by a novel activation strategy and features a unique Pd(I)-Pd(I) mechanism, involving an iodide-assisted binuclear step to release the product. This method enables β-selective hydroformylation of a large range of alkenes and alkynes, including sensitive starting materials. Its utility is demonstrated in the synthesis of antiobesity drug Rimonabant and anti-HIV agent PNU-32945. In a broader context, the new mechanistic understanding enables the development of other carbonylation reactions of high importance to chemical industry.