The mechanisms underlying the reaction between carbon monoxide (CO) and activated dioxygen on metal oxide substrates to produce CO₂ remain poorly understood, particularly regarding the role of oxygen vacancies and the nature of the activated O₂ adsorbate. In this study, we present experimental findings from infrared reflection-absorption spectroscopy on a model system of bulk monocrystalline CeO₂(111). Contrary to expectations, exposing the reduced surface to dioxygen (O₂) at 80 K does not yield activated oxygen species, such as superoxo or peroxo. Notably, in the presence of adsorbed CO, an unexpected low-temperature oxidation reaction occurs, consuming CO while oxidizing the CeO₂ substrate. Since a direct reaction between impinging O₂ and adsorbed CO is unlikely at these low temperatures, a novel mechanism is proposed. Extensive spin-polarized density functional theory (DFT) calculations reveal that oxygen vacancies play a critical role in this low-temperature CO oxidation. Initially located in the subsurface region (Vss), these vacancies migrate to the surface (Vs) via a concerted interaction with coadsorbed CO and O₂, leading to O₂ activation and the formation of superoxo or peroxo species. Detailed analysis identifies key reaction intermediates and quantifies their adsorption energies and activation barriers. Our findings suggest that the peroxo-mediated pathway, with its lower activation barrier, is more favorable for CO oxidation at low temperatures compared to the carbonate pathway. This study provides valuable insights into the dynamic role of subsurface oxygen vacancies in the activation of gaseous O₂ and CO oxidation mechanisms on CeO₂.