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.