Indium oxide has emerged as a highly effective catalyst for methanol synthesis by direct CO₂ hydrogenation. Aiming at gathering a deeper fundamental understanding, mechanistic and (micro)kinetic aspects of this catalytic system were investigated. Steady-state evaluation at 5 MPa and variable temperature indicated a lower apparent activation energy for CO₂ hydrogenation than for the reverse watergas shift reaction (103 versus 117 kJ mol⁻¹), which is in line with the high methanol selectivity observed. Upon changing the partial pressure of reactants and products, apparent reaction orders of −0.1, 0.5, −0.2, and −0.9 were determined for CO₂, H₂, methanol, and water, respectively, which highlight a strong inhibition by the latter. Co-feeding of H₂O led to catalyst deactivation by sintering for partial pressures exceeding 0.125 MPa, while addition of the byproduct CO to the gas stream could be favorable at a total pressure below 4 MPa but was detrimental at higher pressures. Density Functional Theory simulations conducted on In₂O₃(1 1 1), which was experimentally and theoretically shown to be the most exposed surface termination, indicated that oxygen vacancies surrounded by three indium atoms enable the activation of CO₂ and split hydrogen heterolytically, stabilizing the polarized species formed. The most energetically favored path to methanol comprises three consecutive additions of hydrides and protons and features CH₂OOH and CH₂(OH)₂ as intermediates. Microkinetic modeling based on the DFT results provided values for temperature and concentration-dependent parameters, which are in good agreement with the empirically obtained data. These results are expected to drive further optimization of In₂O₃-based materials and serve as a solid basis for reactor and process design, thus fostering advances towards a potential large-scale methanol synthesis from CO₂.