Gabriel Jesus put the Blues on their way with a header in the first half before late goals from Riyad Mahrez and Phil Foden capped off a polished display by the Carabao Cup holders.
Sterner tests await, but this competition again allowed Pep Guardiola to blood some of the Club’s rich talent while giving valuable game-time to other senior stars.
A much-changed City side took to the field at the Kassam Stadium to face League One strugglers Oxford United.
Nicolas Otamendi was the sole survivor.
The neat, stylish passing and movement that has become City’s blueprint was evident in the opening minutes and Jesus was unlucky to see a goal chalked off for offside after a sublime move involving Diaz and David Silva – TV replays suggested the Brazilian was a fraction onside.
The next presentable chance the Blues had, however, saw Jesus break the deadlock.
Mahrez found Foden and the teenager spotted Diaz on the corner of the Oxford box and played a peach of a ball that allowed Diaz to charge towards goal and his cross popped up for Jesus to nod home from close range.
It was no more than City deserved though the hosts had done well to keep the Premier League champions at bay for 36 minutes.
The Blues went close to doubling the lead when Danilo sent a pile-driver a foot or so wide from 20 yards.
There were more chances, too, with Diaz and Foden going close, but Oxford defended in numbers and gave a good account of themselves in front of a sell-out home crowd.
Oxford pressed late on, looking for the goal that would take the game straight to penalties if it ended level – but it was on one such foray that saw the Blues finally killed off the contest.
So, City to the last 16 against an Oxford side who look a much better side than their lowly third tier position suggests.
Star man: Phil Foden
Solid display by the young England midfielder who helped set City on the way with a fine pass to Diaz and then he assisted Mahrez’s clincher.
To cap off an impressive night, he scored his first senior goal to the delight of the travelling Blues.
Honourable mentions, too, to Oleksandr Zinchenko who played some superb cross-field passes throughout the game in an impressive 90 minutes by the Ukrainian.
And Gabriel Jesus could have had a hat-trick on another night, scoring one and seeing two marginal decisions go against him – as well as starting the move that resulted in the clinching second goal.
How did John Stones play in midfield?
He read play well, made some telling interceptions and was calm in possession.
Clearly Pep feels Stones is capable of playing in different positions, though this may be no more than the odd cameo role as and when required.
"I am so satisfied. The game showed me a lot of things. It was a really good performance.
"A little bit in front, for the last shoot, we missed a lot but the process was so good - we had a lot of the ball, as always.
"Congratulations for us to get to the next round. We are the Champions and we want to continue in the competition as long as possible.
"Yes, (I saw everything I wanted to see). If the players are here, it is because we trust them. I know how nice the guys are - I see it in every single training session and how they live in the locker room. I am so satisfied.
"Last season, we won the Carabao Cup but in the first game, it was 2-1 and then we won on penalties. All of the games were so tough. Today, we were so solid in all aspects.".
What it means…
City go into the last 16 of the Carabao Cup – the draw it at 9pm on Saturday.
City return to Premier League action on Saturday with a home game against Brighton & Hove Albion.