We present high spatial resolution ($\approx60$--90 milliarcseconds) images of the molecular hydrogen emission in the Planetary Nebula (PN) NGC~2346.The data were acquired during the System Verification of the Gemini Multi-Conjugate Adaptive Optics System (GeMS) + Gemini South Adaptive Optics Imager GSAOI).At the distance of NGC~2346, 700 pc, the physical resolution corresponds to 56 AU, which is slightly higher than an H$\alpha$image of NGC~2346 obtained with WFPC2 onboard the \textit{Hubble Space Telescope}.GeMS comprises multiple deformable mirrors, three natural guide stars and five sodium laser guide stars.GSAOI is a near-infrared camera used with GeMS on Gemini South.GSAOI provides diffraction limited images in the 0.9--$2.4\mu$ range over a field of view of $85 \times 85$ arcsec, and a plate scale of 0.02 arcseoc per pixel.With this unprecedented resolution we were able to study in detail the structure of the molecular hydrogen within the nebula for the first time.We found it to be composed of knots and filaments, which at lower resolution had appeared to be a uniform torus of material.The clumps range in size from 112 to 238 AU.We explain how the formation of the clumps and filaments in this PN is consistent with a mechanism in which a central hot bubble of nebular gas surrounding the central star has been depressurized, and the thermal pressure of the photoionized region drives the fragmentation of the swept-up shell.