Research on cerium oxide nanoparticles (nanoceria) has captivated the scientific community due to their unique physical and chemical properties, such as redox activity and oxygen buffering capacity, which made them available for many technical applications, including biomedical applications. The redox mimetic antioxidant properties of nanoceria have been effective in the treatment of many diseases caused by reactive oxygen species (ROS) and reactive nitrogen species. The mechanism of ROS scavenging activity of nanoceria is still elusive, and its redox activity is controversial due to mixed reports in the literature showing pro-oxidant and antioxidant activity. In lieu of its current research interest, it is critical to understand the behaviour of nanoceria in the biological environment and provide answers to some of the critical and open issues. This review critically analyses the status of research on the application of nanoceria to treat diseases caused by ROS. It reviews the proposed mechanism of action and shows the effect of surface coatings on its redox activity. It also discusses some of the crucial issues in deciphering the mechanism and redox activity of nanoceria and suggests areas of future research.