Abstract CeO 2 nanoparticles (7–28 nm) and Sm‐doped (5, 10, 15, and 20 %) CeO 2 nanoparticles are synthesized using a simple chemical precipitation technique. The defects are studied using Raman spectroscopy, and the presence of defects as oxygen vacancies is verified using the longitudinal optical mode. The optical band gap is determined using UV‐Vis spectroscopy. The reduction in the optical band gap with increasing particle size might be related to quantum confinement, which causes localized states to form due to oxygen vacancies when Ce 4+ is reduced to Ce 3+ . An increase in band gap is observed with increasing Sm concentration, and the optical band gap is smaller than pure CeO 2 . The electronic structure is investigated using the X‐ray photoelectron spectroscopy (XPS) method, which studied the contributions of each ionic state, namely Ce 3+ and Ce 4+. Room temperature ferromagnetism (RTFM) is observed for doped as well as undoped samples. The saturation magnetization for 28 nm pure CeO 2 NPs is obtained as M s =5.6*10 −4 emu/g, whereas for Sm‐doped samples, we found an increased value of 3.5*10 −2 emu/g. The samples are scrutinized for UV‐irradiated photocatalytic dye degradation. The origin of RTFM behaviour and efficient photocatalytic activity are from oxygen vacancies at the lattice sites.