While inert as bulk material, nanoscale gold particles dispersed on oxide supports exhibit a remarkable catalytic activity. Temperature-programmed reaction studies of the catalyzed combustion of CO on size-selected small monodispersed Au-n (n less than or equal to 20) gold clusters supported on magnesia, and first-principle simulations, reveal the microscopic origins of the observed unusual catalytic activity, with Aus found to be the smallest catalytically active size. Partial electron transfer from the surface to the gold cluster and oxygen-vacancy F-center defects are shown to play an essential role in the activation of nanosize gold clusters as catalysts for the combustion reaction.