Ceria supported copper catalysts were synthesized by laser vaporization and controlled condensation method and characterized by X-ray diffraction (XRD), transmission electron microscopy (TEM), energy dispersive X-ray analysis (EDAX) and temperature programmed reduction (TPR). The catalytic activity of the nanopowders for CO oxidation reaction was tested in a fixed bed flow tube reactor in Ar–20%O2–4%CO mixture. Irrespective of the copper content, the catalytic activity of the nanopowders is similar in the initial CO test, and the catalytic activity improves (i.e. the light-off temperature decreases) during a subsequent run. The lowest light-off temperature during the second run is recorded in the material with 20% copper. TEM studies on 20%Cu–CeO2 sample in the as-prepared condition and after CO test exhibit two types of ceria particles namely, polygonal particles 3–5 nm in size and spherical particles of 15–20 nm in size. Rapid cooling of the nanoparticles formed during the laser ablation results in incorporation of a large amount of copper within the ceria as solid solution. Presence of solid solution of copper is confirmed by EDAX and electron diffraction analyses. In addition, copper-rich surface layer of Cu2O is found over the spherical particles. The cerium oxide components are essentially identical before and after CO test, except that the polygonal CeO2 particles contain newly formed fine crystals of CuO. TPR results reveal two reduction peaks, which further supports, the presence of two different copper species in the material. The shift in light-off temperature during the second run is attributed to the synergistic interaction between newly formed CuO crystals with the CeO2 matrix.