Polaron formation and hopping is known to diminish carrier mobility in the ground state of metal oxide photocatalysts. Trap states, however, are usually cited as the cause of limited carrier mobility and short carrier lifetimes in the photoexcited state. We investigate how small polaron formation controls the ultrafast localization and trapping of photoexcited carriers in hematite (α-Fe₂O₃), potentially bridging these two pictures. Ultrafast transient extreme ultraviolet (XUV) spectroscopy of the Fe M_2,3 edge measures a sub-5 fs shift in charge density from the oxygen to the iron atom following optical excitation. An energetic splitting of the Fe M_2,3­ edge is then measured on a 100 fs timescale, with the kinetics of the splitting matching those typically associated with trap or mid-gap states in hematite. The splitting of the Fe M_2,3 edge, however, is best reproduced by predictions for small polaron localization of the photoexcited carriers, and not the pre-edge absorption or bleach expected for mid-gap states. The polaron formation efficiency versus visible light excitation energy is measured to match the discrepancy between the photoconversion efficiency and visible light absorption of hematite. These results therefore suggest that small polaron formation is responsible for the intrinsic recombination and transport issues that currently limit hematite’s performance. In particular, the increased small polaron formation rate at near-band gap excitation may result in the decreased visible light photoconversion efficiency. Possible materials routes to overcoming small-polaron localization, as well as the role of small polarons in other metal oxide photocatalysts, will be discussed.