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The formation of magnetic moments in TiO clusters is investigated by hydroxylation experiments and model calculations. The clusters were produced by inert-gas condensation and in-situ oxidation and have an average size of 15 nm. Exposure to drastically alters the magnetism of titanium-oxide (TiO) clusters, especially for rock-salt TiO. The hydroxyl ions, created by moist-air treatment of Ti-oxide nanoparticles, enhance the magnetic moment of undoped TiO clusters by a factor of order 10, to about 13.5 emu/cm . A similar but much slower enhancement was observed in ambient air, whereas oxygen annealing reduced the moment. The phenomenon is explained by the creation and adsorption of hydroxyl groups at the particles' surfaces, a process closely related to the catalytic activity of TiO surfaces and to the creation of overlapping defect states in the band gap. Our theoretical analysis suggests that the hydroxyl groups effectively enhance the hopping integral and reduce the onsite energy on neighboring Ti atoms. Depending on the density of the hydroxyl defects, the defect states overlap and order magnetically, although not necessarily by a Stoner mechanism.