The Cache Interceptor in NestJS works by intercepting incoming requests. When a request arrives, it first checks if a cached response exists. If yes, it returns that cached response immediately without calling the handler method. If no cached response is found, it calls the handler to get fresh data, stores this data in the cache, and then sends it back to the client. This process repeats for each request. When the cache expires, the interceptor calls the handler again to refresh the cache. This mechanism helps improve performance by reducing repeated processing for the same requests.