Effective catalysts for the direct conversion of methane to methanol and for methane’s dry reforming to syngas are Holy Grails of catalysis research toward clean energy technologies. It has recently been discovered that Ni at low loadings on CeO2(111) is very active for both of these reactions. Revealing the nature of the active sites in such systems is paramount to a rational design of improved catalysts. Here, we correlate experimental measurements on the CeO2(111) surface to show that the most active sites are cationic Ni atoms in clusters at step edges, with a small size wherein they have the highest Ni chemical potential. We clarify the reasons for this observation using density functional theory calculations. Focusing on the activation barrier for C-H bond cleavage during the dissociative adsorption of CH4 as an example, we show that the size and morphology of the supported Ni nanoparticles together with strong Ni-support bonding and charge transfer at the step edge are key to the high catalytic activity. We anticipate that this knowledge will inspire the development of more efficient catalysts for these reactions.