Carbon-doped titanium dioxide (C-TiO2) nanoparticles were synthesized by conventional mild oxidation of precursor titanium carbide (TiC) at 350 °C for 2 to 50 hours and more aggressive oxidation at the higher temperature of 400 to 600 °C for 2 hours in air. XRD and TEM studies indicated the formation of nano-sized C-TiO2 with mixed anatase–rutile phases. With prolonged oxidation time or increase in oxidation temperature, an initial decrease in crystallite size was unveiled due to cracking of TiC grains, renucleation of TiO2 and diffusion of carbon atoms. Raman, FTIR and XPS measurements revealed the presence of graphite-like carbon and the coexistence of substitutional and interstitial carbon in the TiO2 lattice. This multi-type carbon doping either served as a photosensitizer or resulted in additional electronic states above the valence band of the TiO2 lattice, directly responsible for the red shift of the absorption edge in the UV-vis absorption spectrum. The band structure and possible visible light photocatalytic mechanism of the C-TiO2 were thus elucidated. The synthesized C-TiO2 nanoparticles demonstrated improved photocatalytic performance for the mineralization of gaseous toluene in comparison to commercial P25 TiO2 under visible light irradiation. The C-TiO2 nanoparticles prepared at higher oxidation temperature with shorter time exhibited a more pronounced enhancement than those prepared by the mild oxidation process, providing a facile method for large-scale production of C-TiO2 suitable for indoor photocatalytic applications.