The surface of supported heterogeneous catalysts often contains adsorbed water and hydroxyl groups even when water is not directly added to the reaction stream. Nonetheless, the reactivity of adsorbed water and hydroxyl groups is rarely considered. We demonstrate that water and hydroxyl groups can not only directly participate in the catalytic oxidation processes but are also able to generate and stabilize the catalytically active metal-oxide interface. We show that the reduction of Pt-Fe-supported catalysts with hydrogen in the presence of adsorbed water or steam allows for achieving one of the highest preferential carbon monoxide oxidation activities at ambient temperature. These conditions create active iron-associated hydroxyl groups next to platinum nanoparticles with enhanced reactivity towards carbon monoxide oxidation. Density functional theory calculations suggest that hydroxylation of oxidic iron species stabilizes the FeO_x(OH)_y/Pt interface, via strong metal-support interaction, which is confirmed by chemisorption measurements. Kinetic experiments, including those with ¹⁸O-labeled water, in combination with operando infrared spectroscopy, show that water and hydroxyl groups directly participate in preferential carbon monoxide oxidation. A quantitative correlation between the catalytic activity of Pt-FeO_x(OH)_y/γ-Al₂O₃ catalysts and the Fe²⁺ concentration, obtained using operando X-ray absorption spectroscopy, shows that the number of active Fe²⁺ sites and the carbon monoxide oxidation rate per active site can be significantly increased by water-assisted pretreatment with hydrogen. This work provides a new example of positive role of strong metal-support interaction for the design of more active catalysts.