The lithium storage mechanism of carbon-coated nano-CeO2 was studied by in situ X-ray diffraction. It is found that the CeO2 stores lithium by a solid solution reaction. Due to the catalytic effect of the nano-CeO2, electrolyte decomposition occurs above 1.10 V during discharge and the solid electrolyte interphase (SEI) layer decomposes below 2.50 V during recharge. These findings help to understand the lithium storage mechanism in nano-CeO2 and demonstrate its potential applications as a room-temperature electro-catalyst.