The transparent colloidal solutions of monodisperse CeO2-based quantum dots (QDs) were prepared by heating a triethylene glycol (TEG) solution of Ce(NO3)3⋅6 H2O (and Fe(NO3)3⋅9 H2O) at 180 °C. The CeO2-based QDs were characterized by X-ray powder diffraction (XRD), dynamic light scattering (DLS), transmission electron microscopy (TEM), UV/vis absorption spectra and Brunauer–Emmett–Teller (BET) surface area. CeO2-based QDs with uniform particle size below 5 nm exhibit narrow size distribution, quantum effect, good re-dispersion ability and high surface area. For the formation of these QDs, a polyol-hydrolysis mechanism is proposed. CeO2 QDs are applied in fuel borne catalysts (FBCs) for diesel soot combustion, which exhibit excellent activity at a rather low temperature, owing to the homogeneous and large number of contact points between the catalyst and the soot. The doping with Fe can further improve the selectivity to CO2.