Dust, smoke and pollution particles diffuse moonlight through the atmosphere to make it appear orange, red or yellow as the heavenly object rises or sets above the horizon. The atmosphere is thicker when viewing objects along the horizon rather than overhead, which also makes objects appear redder and larger. NASA calls this a moon illusion because the moon never actually changes color.
When sunlight deflects off the moon and hits the Earth, particles in the atmosphere scatter light on the blue end of the rainbow spectrum. Redder light passes through the atmosphere, giving the moon an orange or reddish appearance close to the horizon. As the full moon is high above close to midnight, it seems to be white and smaller. When seen from outer space, the moon doesn't change color due to atmospheric conditions.
Another theory as to why the moon seems orange is because of light's convergence at the back of the human eye. Trees and houses in front of a rising or setting moon give the object an appearance of being larger. The concept is known as a Ponzo illusion in which train tracks seem to come to a point far in the distance. Another illusion to human perception is that the sky appears flat, when in reality, it is spherical.