Single-atom (SA) catalysts have emerged as a pivotal area drawing extensive research interest due to their high catalytic activities. However, SA catalysts are often plagued by the aggregation and deactivation of SA sites under reaction conditions. This study focuses on CO oxidation over Gd-doped ceria supported Cu catalysts and aims to provide a new strategy to stabilize the SA site, in which a Cu SA site is “prestored” in a relatively stable Cu cluster and can be dynamically activated under reaction conditions. Three typical Cu10/CeO2 catalyst models were built with different Gd-doping contents, which are pristine Cu10/CeO2, Cu10/Gd0.125Ce0.875O2, and Cu10/Gd0.25Ce0.75O2, respectively. We performed density functional theory (DFT) calculations on the Cu10/Gd-CeO2 system to investigate the adsorption of CO and O2 molecules, the formation of surface oxygen vacancy (OV) and dynamic Cu SA site, and potential energy surfaces of CO oxidation process. Ab initio thermodynamic analysis suggests that the saturation adsorption of CO on Cu10 and high Gd-doping in CeO2 lead to a spontaneously formed single Cu−CO site and an OV defect on ceria surface. The CO oxidation process is identified as a two-paths-coupled catalytic cycle, in which Path I is activated by the terminal O atom of adsorbed O2 at surface OV site while Path II initiates with the lattice O atom of CeO2 surface. The microkinetic modeling demonstrates that the dominant pathway is Path I for the undoped and low-doping cases, and Path II for the high-doping case which exhibits a novel mechanism for CO oxidation and the highest reaction activity due to the participation of the dynamic SA site.