Interfacing different transition-metal oxides opens a route to functionalizing their rich interplay of electron, spin, orbital, and lattice degrees of freedom for electronic and spintronic devices. Electronic and magnetic properties of SrTiO₃-based interfaces hosting a mobile two-dimensional electron system (2DES) are strongly influenced by oxygen vacancies, which form an electronic dichotomy, where strongly correlated localized electrons in the in-gap states (IGSs) coexist with noncorrelated delocalized 2DES. Here, we use resonant soft-X-ray photoelectron spectroscopy to prove the e_g character of the IGSs, as opposed to the t_2g character of the 2DES in the paradigmatic LaAlO₃/SrTiO₃ interface. We furthermore separate the d_xy and d_xz/d_xz orbital contributions based on deeper consideration of the resonant photoexcitation process in terms of orbital and momentum selectivity. Supported by a self-consistent combination of density functional theory and dynamical mean field theory calculations, this experiment identifies local orbital reconstruction that goes beyond the conventional e_g-vs-t_2g band ordering. A hallmark of oxygen-deficient LaAlO₃/SrTiO₃ is a significant hybridization of the e_g and t_2g orbitals. Our findings provide routes for tuning the electronic and magnetic properties of oxide interfaces through “defect engineering” with oxygen vacancies.