Pep Guardiola's side won a domestic treble last term, and the League Cup represents their first shot at silverware this season.
Oxford are just outside the League One play-off positions in eighth place, and they will be huge outsiders to progress at the expense of the holders.
Date: Wednesday, Dec. 18
Time: 7:45 p.m. GMT, 2:45 p.m. ET
TV Info: Sky Sports Football, Sky Sports Main Event (UK)
Odds: Oxford United 20-1, Manchester City 1-9, draw 10-1 (via Oddschecker)
Guardiola is expected to field a blend of youth and reserve players for his side's match at a familiar lower-league ground. City won 3-0 at the Kassam Stadium in the third round of the competition last season.
Phil Foden ran the show during that victory, and U's manager Karl Robinson compared the teenager to Barcelona legend Andres Iniesta.
The 19-year-old could be a thorn in the side of Oxford once more on Wednesday after he started in Sunday's 3-0 Premier League win at Arsenal.
Foden continues to operate on the fringes of the City team, after making eight appearances in the Premier League this season, with seven of those coming from the bench.
The England under-21 international has seen most of his recent action in the UEFA Champions League, scoring twice and providing two assists in four games.
There could be a surprise return for Sergio Aguero after a month out with a thigh injury. The Argentina international was pictured in training on Monday:
The 31-year-old has been missing for a month, but the cup tie might be too soon for a full 90 minutes.
Guardiola has previously shown great respect for the League Cup and resisted wholesale changes in favour of including more established players.
Bernardo Silva and Riyad Mahrez could join Foden in midfield after cameo roles off the bench against the Gunners.
City's receding chances of retaining the Premier League could shift increased emphasis on to cup competitions.
Oxford are without a victory in their last three matches in all competitions, and more worryingly for Robinson, his side have failed to score in those games.
A collapse in form is the last thing needed when your next opponent is one of the best in the world; and even with City's rotated squad, Guardiola will still have world-class players at his disposal.
The Sky Blues have won four of the past six League Cup finals, and they will be looking to extend that run beyond the tie at the Kassam Stadium.