In this study, a facile and energy-efficient technique known as plasma-liquid interaction is employed for crystal growth, defect engineering, and band gap tuning. Using this novel procedure that minimizes the use of chemicals, cubic fluorite CeO2 nanoparticles are produced. The cubic fluorite structure of the prepared nanoparticles is confirmed by the Rietveld refinement method of XRD patterns. The further crystallization of cubic CeO2 nanoparticles (CeO2@300) is observed due to heat treatment following plasma interactions. However, prolonged plasma treatment led to the formation of crystallinity with the generation of oxygen-related vacancies in the host lattice. Post-heat treatment of the materials resulted in increased crystallinity and reduction in vacancies within the host matrix, as confirmed by the vacancy concentration calculations derived from XRD data and the variations of Raman absorption band intensity at 1047.24 cm−1. X-ray photoelectron spectroscopy analysis of the CeO2@RT sample reveals the presence of the Ce3+ ions, indicating the existence of vacancies. TEM analysis showed a good agreement with XRD analysis, revealing a polycrystalline in nature with the particle size distribution ranging from 3 nm to 10 nm. The calculated vacancy concentration indicated a higher vacancy concentration in the CeO2@RT sample, which is further confirmed by Raman spectral analysis. The characteristic vibrations of the Ce-O functional groups are identified using FTIR at absorption bands ranging from 814 cm−1 to 530 cm−1, supporting the cubic fluorite structure of the CeO2 nanoparticles. The band gap energy and defect energy, calculated from the UV–vis spectrum, reveal a lower band gap energy with higher defect energy for CeO2@RT sample, and higher band gap energy with lower defect energy for CeO2@300, making these material suitable for optoelectronic devices.