Abstract: Embodiments of the present disclosure relate to a system and method to detect hydrogen leakage. The system uses a fluid sensing apparatus (104), a light source (120) and a photo detector (122). The nano-crystallized palladium gratings (118) are used as sensors which expand sensitively upon exposure to the hydrogen (H2). In an embodiment, the hydrogen sensing is based on monitoring the changes in the diffraction efficiency (DE) which is defined as the ratio of the first and the zeroth order diffracted beam intensities. The diffraction efficiency undergoes large and sudden changes as the nano-crystalline Pd grating becomes highly disordered due to PdHx formation. An embodiment of the present disclosure also relates to producing nanocrystalline Pd diffraction gratings along with the design and fabrication aspects of an indigenously built optical diffraction cell for H2 sensing.