The development of efficient rare earth single‐atom (SA) catalysts for the oxygen reduction reaction (ORR) is essential yet challenging for high‐performance aluminum‐air batteries (AABs). This study introduces a concept‐to‐proof strategy for synthesizing a hollow carbon‐supported gadolinium (Gd) SA catalyst using low‐coordination and second‐coordination sphere engineering. In this design, Gd atoms are coordinated to three nitrogen (N) atoms in N‐doped carbon and surrounded by six phosphorus (P) atoms, forming Gd‐N3‐P6 sites. These catalysts demonstrated exceptional ORR performance, achieving a half‐wave potential of 0.895 V and superior durability compared to the commercial Pt/C benchmark. When integrated into AABs, they delivered impressive performance, with a peak power density of 257 mW/cm2 and an energy density of 2916 Wh/kg, alongside enhanced cycling stability. In situ characterization and theoretical calculations revealed that the strategic placement of P atoms in the second coordination sphere significantly enhanced the valence state of the Gd site. This enhancement improved the adsorption capacity for O2 and H2O while facilitating the rapid desorption of *OH intermediates during the ORR. This study offers valuable insights into the development of cost‐effective ORR catalysts, emphasizing the significance of modulating the local coordination environment of metal SA sites.