MoS2 and related transition metal dichalcogenides (TMDs) have recently been reported to exhibit extensive applications in nanoelectronics and catalysis due to their unique physical and chemical properties. However, one practical challenge for the MoS2-based applications arises from easiness of oxygen contamination which is likely to degrade performance. To this end, understanding states and related energetics of adsorbed oxygen is critical. Herein, we identify various states of oxygen species adsorbed on MoS2 surface with first-principles calculations. We reveal a “dissociative” mechanism through which a physisorbed oxygen molecule trapped at a sulfur vacancy can split into two chemically bound oxygen atoms, namely a top-anchoring oxygen and a substituting oxygen both of which show no adsorbate induced states in bandgap. The electron and hole mass show an asymmetric effect in response of oxygen species with the hole mass being more sensitive to oxygen content due to a strong hybridization of oxygen states in valence band edge of MoS2. Alternation of oxygen content allows modulation of work function up to 0.5 eV, enabling reduced Schottky barriers in MoS2/metal contact. These results show that oxygen doping on MoS2 is a promising method for sulfur vacancy healing, carrier mass controlling, contact resistance reduction, and anchoring of surface electron dopants. Our study suggests that tuning the chemical composition of oxygen is viable for modulating the electronic properties of MoS2 and likely other chalcogen incorporated-TMDs, which offers promise for new optoelectronic applications.