The Ba-promoted Gd2O3 system is highly efficient for the oxidative coupling of methane (OCM) to C2H6 and C2H4 with N2O as the oxidant (N2O–OCM), but not with O2 (O2–OCM), outperforming previously developed catalysts. However, the lack of a molecular-level understanding of the enhanced N2O effect hinders not only further improvements of this system but also the rational design of other possible catalysts. By utilizing steady-state isotopic transient kinetic analysis (SSITKA) and temporal analysis of products techniques, we show that the kind of adsorbed oxygen species formed from the oxidants, O2 and N2O, is a key descriptor controlling the selectivity to C2-hydrocarbons (C2H4 and C2H6). Monatomic oxygen species should be primarily involved in the formation of C2H6, while biatomic oxygen species participate in CH4 oxidation to carbon oxides. Their surface concentration in N2O–OCM can be controlled by Ba loading. The loading hinders the rate of conversion of monatomic oxygen species to biatomic oxygen species. The coverage by these species determines the concentration and the lifetime of surface intermediates leading to gas-phase CO and CO2. The SSITKA results obtained with the Ba-promoted catalysts used in N2O–OCM suggest that C2H6 can be formed on the catalyst surface in addition to the main pathway occurring in the gas phase. The fundamentals elucidated in this study, which are relevant for controlling the selectivity to C2-hydrocarbons, may be of general character and can be used to develop other catalysts that operate selectively in OCM, not only with N2O but also with O2. These results also highlight the potential of transient/steady-state (micro)kinetic analysis to clarify the kind of adsorbed oxygen species and their interaction with the catalyst surface as well as their role in product formation in various selective oxidation heterogeneous reactions.