We present high spatial resolution ($\approx$ 60--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 + Gemini South Adaptive Optics Imager. At the distance of NGC 2346, 700 pc, the physical resolution corresponds to $\approx$ 56 AU, which is slightly higher than that an [N II] image of NGC 2346 obtained with HST/WFPC2. With this unprecedented resolution we were able to study in detail the structure of the H$_2$ gas 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. 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.