Indium oxide (In2O3) has emerged as a highly active catalyst for methanol synthesis by CO2 hydrogenation. In this work we elucidate the reduction behavior and oxygen dynamics of cubic In2O3 nanoparticles by in situ Raman and UV-vis spectra in combination with density functional theory (DFT) calculations. We demonstrate that application of UV and visible Raman spectroscopy enables, first, a complete description of the In2O3 vibrational structure fully consistent with theory and, second, the first theoretical identification of the nature of defect-related bands in reduced In2O3. Combining these findings with quasi in situ XPS and in situ UV-vis measurements allows the temperature-dependent structural dynamics of In2O3 to be unraveled. While the surface of a particle is not in equilibrium with its bulk at room temperature, oxygen exchange between the bulk and the surface occurs at elevated temperatures, leading to an oxidation of the surface and an increase in oxygen defects in the bulk. Our results demonstrate the potential of combining different in situ spectroscopic methods with DFT to elucidate the complex redox behavior of In2O3 nanoparticles.