Since the discovery that ceria is an active catalyst for selective hydrogenation of alkynes, there has been much debate on the catalytic mechanism. In this work, we propose, based on density functional theory (DFT) investigations, a mechanism that involves the heterolytic dissociation of H-2 at oxygen vacancies of CeO2(111), facilitated by frustrated Lewis pairs consisting of spatially separated O and Ce sites. The resulting O-H and Ce-H species effectively catalyze the hydrogenation of acetylene, avoiding the overstabilization of the C2H3* intermediate in a previously proposed mechanism. On the basis of our mechanism, we propose the doping of ceria by Ni as a means to create oxygen vacancies. Interestingly, the Ni dopant is not directly involved in the catalytic reaction, but serves as a single-atom promoter. Experimental studies confirm the design principles and demonstrate much higher activity for Ni-doped ceria in selective hydrogenation of acetylene. The combined results from DFT calculations and experiment provide a basis to further develop selective hydrogenation catalysts based on earth-abundant materials.