Density functional theory (DFT) calculations were performed to study the mechanism of carbon dioxide (CO 2 ) reduction to carbon monoxide (CO) and methanol (CH 3 OH) on CeO 2 (110) surface. CO 2 dissociates to CO on interacting with the oxygen vacancy on reduced ceria surface.The oxygen atom heals the vacancy site and regenerates the stoichiometric surface via a redox mechanism with intrinsic activation and reaction energies of 259.2 kJ/mole and 238.6 kJ/mole respectively. Lateral interaction of oxygen vacancies were studied by the generation of two oxygen vacancies per unit of CeO 2 surface. Compared to a single isolated vacancy, the activation and reaction energies of CO 2 dissociation on a di-vacancy were approximately reduced to half of its value. Hydrogen atom co-adsorbed on the surface was observed to assist CO 2 dissociation by forming a carboxyl intermediate, CO 2 +H→COOH (∆E act = 39.0 kJ/mole, ∆H = -69.2 kJ/mole) which on subsequent dissociation produces CO via the redox mechanism. On hydrogenation, CO is likely to produce methanol. The energetics of CO hydrogenation to produce methanol showed exothermic steps with activation barriers comparable to the DFT calculations reported for Cu (111) and CeO 2-x /Cu(111) interface. While on the stoichiometric surface, COOH dissociation COOH→CO+OH (∆E act = 55.6 kJ/mole, ∆H =5.7 kJ/mole) is likely to be difficult as compared to rest of the elementary steps, whereas on the reduced surface the energetics of the same step were significantly lowered (∆E act = 47.4 kJ/mole, ∆H = -80.4 kJ/mole). In comparison, hydrogenation of methoxy, H 3 CO+H→H 3 COH, appears to be relatively difficult (∆E act = 58.7 kJ/mole) on the reduced surface.