The undoped CeO2 and Ce1-xHoxO2 (x = 0.03, 0.05 and 0.07) nanoparticles prepared using microwave assisted co-precipitation route are investigated using X-Ray Diffraction (XRD), UV–Vis–NIR, Raman, photoluminescence, X-ray Photoelectron Spectroscopy (XPS) and SQUID-VSM magnetometer. The XRD validates the inclusion of Ho3+ at the Ce3+/Ce4+ site while maintaining the crystal structure with development of defects and oxygen vacancies with expansion of the CeO2 nanolattice. The composition of the elements with desired stoichiometry is confirmed by Energy Dispersive X-ray spectra analysis. The absorption spectroscopy analysis reports the Urbach energy along with refractive index increases with Ho3+ doping and the optical band gap is decreased indicating red shift. All the nanoparticles are subjected to PL investigations to ascertain the oxygen vacancy and defect structure of nanoparticles. Raman active modes at ∼500 - 630 cm−1 verifies the existence of oxygen vacancies (Vo)., which are seen to rise with concentration of Ho-doping in the CeO2 lattice. When Ce4+ transforms into Ce3+, oxygen vacancies are generated in the lattice to maintain the charge neutrality, as can be seen by the Ce-3d, O-1s, and Ho-4d core level XPS spectra. To demonstrate that Ho3+ doping favours ferromagnetic ordering in the CeO2 lattice, the magnetic properties using the Bound Magnetic Polaron model and F centre exchange mechanism are discussed. The development of various complexes that involve host and doped cations are mediated by Vo suggests the existence of F0, F+, and F2+ centres. The weak ferromagnetic behaviour in Ho3+-doped CeO2 nanoparticles reinforce the relationship between Vo to explain the observed magnetic properties of nanoparticles.