Acetylene (C2H2), as an important characteristic gas in transformer fault diagnosis, should be accurately detected and effectively distinguished from other dissolved gases (H2, CH4, C2H6, C2H4, CO, CO2), which is crucial to determine whether the fault occurs and the fault type, but also faces challenges now. The rational design and employment of rare earth and noble metals are expected to address this issue. In this work, SnO2-3 at% Sm2O3-1 at% PdO based MEMS gas sensor was prepared to achieve high performance detection of C2H2 which has a response value of 56 to 50 ppm C2H2, response/recovery time of 2 s/136 s, lower detection limit of 1 ppm, power consumption of 15.5 mW, and weak cross sensitivity to other transformer fault characteristic gases. Lewis acids and bases theory was used to explain the reason why rare earth Sm is a benefit element to improve selectivity to C2H2. The formation of oxygen vacancies and hetero junctions was used to explain the increased sensitivity of the material. This study proved the feasibility of rare earth and noble metals as potential additives to enable advanced gas-sensitive materials for highly selective transformer fault characteristic gas C2H2 detection.