Understanding the effect of H₂O adsorption on reactant activation is of great importance in heterogeneous catalysis, which remains a grand challenge particularly in oxide catalyst systems with structural complexity. Herein, the effect of D₂O adsorption on D₂ activation over MgO nanocatalysts at different temperatures has been investigated by transmission Fourier transform infrared (FT-IR) and temperature-programmed desorption (TPD). Two sets of hydride and hydroxyl species produced from D₂ dissociation at more active and less active Mg-O pairs can be observed by FT-IR, which all desorb via the product of D₂ as confirmed by TPD experiments. We find that the physically adsorbed D₂O overlayer does not affect the dissociation of D₂ since D₂ may pass through the molecular layer and access the surface-active sites. When D₂O is partially dissociated on the MgO surface, D₂ can only dissociate at the remaining active sites until that dissociated −OD_w groups from D₂O occupy all active sites. These findings provide a fundamental understanding of the effect of water adsorption on D₂ activation on oxide catalysts.