The direct hydrogenation of CO2 using green hydrogen offers a sustainable route to produce carbon-neutral liquid hydrocarbons, emerging as a viable alternative to conventional naphtha cracking. Although Fe-based CuAl2O4 catalysts have been widely studied for CO2 hydrogenation, the mechanistic role of hydrogen spillover across dynamic Cu–Fe and associated oxygen vacancies has remained elusive. Here, the structure of FeK/CuAl2O4 catalysts was systematically tailored by controlling the reduction temperature to elucidate the exsolution-driven restructuration of pristine catalyst structure and its influences on the catalytic performance. We investigated the reaction process using in-situ DRIFTS analysis, from which we for the first time observed a cascade mechanism activated by hydrogen spillover, revealing various elementary reaction steps: (i) preferential adsorption of CO2 as carbonate species on oxygen vacancies created by Cu exsolution in CuAl2O4 lattice, (ii) effective formate-mediated reverse water–gas shift (RWGS) reaction via the hydrogen spillover from exsolved Cu, (iii) promoted Fischer–Tropsch synthesis (FTS) reaction on Fe5C2 formed by the facilitated Fe carburization at the exsolved Cu–Fe3O4 interfaces, (iv) rapid desorption of hydrocarbons produced via controlled carbon chain growth. This cooperative interaction enabled the selective production of C5–11 hydrocarbons, achieving the highest C5–11 productivity of 290.7 mL gcat–1 h–1, surpassing our previous work at a CO2 conversion of 36.4%. These findings establish a quantitative structure–performance–mechanism relationship and offer design principles for selectivity control toward desired hydrocarbon ranges in multifunctional CO2 hydrogenation catalysts.