The potential application of ultrafine cerium oxide (ceria, $CeO_2$) as an oxygen gas sensor has been investigated. Ceria was synthesized by a thermochemical process: first, a precursor powder was prepared by spray drying cerium-nitrate solution. Heat treatment in air was then performed to evaporate the volatile components in the precursor, thereby forming nanostructured $CeO_2$ having a size of approximately 20 nm and specific surface area of 100 $m^2/g$. After sintering with loosely compacted samples, hydrogen-reduction heat treatment was performed at 773K to increase the degree of non-stoichiometry, x, in $CeO_{2-x}$. In this manner, the electrical conductivity and oxygen-response ability could be enhanced by increasing the number of oxygen vacancies. After the hydrogen reduction at 773K, $CeO_{1.5}$ was obtained with nearly the same initial crystalline size and surface. The response time $t_{90}$ measured at room temperature was extremely short at 4 s as compared to 14 s for normally sintered $CeO_2$. We believe that this hydrogen-reduced ceria can perform capably as a high-performance oxygen sensor with good response abilities even at room temperature.