There have been many applications of cerium oxide in oxidation catalysis but the understanding of its role in catalysis is rather limited. This research is concerned with the use of nano-size cerium oxide in methane steam reforming reaction. It is found that addition of cerium oxide to the commercial supported Ni catalysts can dramatically reduce the undesirable carbon deposition (through surface oxidation), which is thermodynamically favorable under low steam conditions. In order to understanding the fundamental role of oxidation activity of the cerium oxide, different sizes of nano-crystallined cerium oxides have been carefully prepared by micro-emulsion technique. Their reactivity is clearly shown to be size dependent. We found that ceria particle sizes of lower than 5.1 nm are able to activate molecular oxygen, which accounts for the unprecedentedly reported critical size effect on oxidation. Characterizations by EPR, XPS, TPR suggest that a substantially large quantity of adsorbed oxygen species (O₂ ^-) is preferentially formed in the small size ceria from air. Also, it is found that the oxygen vacancies are formed in the interface of metal and oxide, and the strength of the metal oxide interaction may influence the formation of the efficient oxygen vacancies, which are responsible for the adsorbed surface oxygen.