This work aimed to study the efficiency of the reverse micelle (RM) preparation route in the syntheses of sub-5 nm Fe-doped CeO2 nanocrystals for boosting the visible-light-driven photocatalytic hydrogen production from methanol aqueous solutions. The effectiveness of confining precipitation reactions within micellar cages was evaluated through extensive physicochemical characterization. In particular, the nominal composition (0–5 mol% Fe) was preserved as ascertained by ICP-MS analysis, and the absence of separate iron-containing crystalline phases was supported by X-ray diffraction. The effective aliovalent doping and modulation of the optical properties were investigated using UV-Vis, Raman, and photoluminescence spectroscopies. 2.5 mol% iron was found to be an optimal content to achieve a significant decrease in the band gap, enhance the concentration of oxygen vacancy defects, and increase the charge carrier lifetime. The photocatalytic activity of Fe-doped CeO2 prepared at different Fe contents with RM preparation was studied and compared with undoped CeO2. The optimal iron load was identified to be 2.5 mol%, achieving the highest hydrogen production (7566 μmol L−1 after 240 min under visible light). Moreover, for comparison, the conventional precipitation (P) method was adopted to prepare iron containing CeO2 at the optimal content (2.5 mol% Fe). The Fe-doped CeO2 catalyst prepared by RM showed a significantly higher hydrogen production than that obtained with the sample prepared by the P method. The optimal Fe-doped CeO2, prepared by the RM method, was stable for six reuse cycles. Moreover, the role of water in the mechanism of photocatalytic hydrogen evolution under visible light was studied through the test in the presence of D2O. The obtained results evidenced that hydrogen was produced from the reduction of H+ by the electrons promoted in the conduction band, while methanol was preferentially oxidized by the photogenerated positive holes.