Oxyhydrides of rare-earth metals (REMOHs) exhibit notable photochromic behaviors. Among these, yttrium oxyhydride (YHO) stands out for its impressive transparency and swift UV-responsive color change, positioning it as an optimal material for self-cleaning window applications. Although semiconductor photocatalysis holds potential solutions for critical environmental issues, optimizing the photocatalytic efficacy of photochromic substances has not been adequately addressed. This research advances the study of REMOHs, focusing on the properties of gadolinium oxyhydride (GdHO) both theoretically and experimentally. The electronic and structural characteristics of GdHO, vital for ceramic technology, are thoroughly examined. Explicitly determined work functions for GdH2, GdHO, and Gd2O3 stand at 3.4 eV, 3.0 eV, and 4.3 eV, respectively. Bader charge analysis showcases GdHO’s intricate bonding attributes, whereas its electron localization function majorly presents an ionic nature. The charge neutrality level is situated about 0.33 eV below the top valence band, highlighting these materials’ inclination for acceptor-dominant electrical conductivity. Remarkably, this research unveils GdHO films’ photocatalytic capabilities for the first time. Even with their restricted surface due to thinness, these films follow the Langmuir–Hinshelwood degradation kinetics, ensuring total degradation of methylene blue in a day. It was observed that GdHO’s work function diminishes with reduced deposition pressure, and UV exposure further decreases it by 0.2 eV—a change that reverts post-UV exposure. The persistent stability of GdHO films, hinting at feasible recyclability, enhances their potential efficiency, underlining their viability in practical applications. Overall, this study accentuates GdHO’s pivotal role in electronics and photocatalysis, representing a landmark advancement in the domain.