Nanoscale CeO2 (nanoceria) is a prototypical system that presents d0 ferromagnetism. Using a combination of x-ray absorption spectroscopy, x-ray magnetic circular dichroism and modelling, we show that nanostructure, defects and disorder, and non-stoichiometry create magnetically polarized Ce 4f and O 2p hybridized states captured by the vacancy orbitals (Vorb) that are vital to ferromagnetism. Further, we demonstrate that foreign ions (Fe and Co) enhance the moment at Ce 4f sites while the number of Vorb is unchanged, pointing clearly to the mechanism of orbital hybridization being key missing ingredient to understanding the unexpected ferromagnetism in many nanoscale dilute magnetic oxides and semiconductors.