The application of X-ray photoelectron spectroscopy (XPS) for the characterization of deposited thin indium tin oxide (ITO) layers by reactive direct-current magnetron sputtering in Ar:O-2 gas mixtures is performed. The influence of the gas mixture and the sputter-process duration on the discharge power and oxidation state of the target implies that the target state is an essential parameter for the production of ITO films. For understanding the plasma-surface interaction, the plasma has been monitored in front of the target and near the substrate by means of Langmuir-probe diagnostics. The internal plasma parameters, namely n(e) and k(b)T(e), at the target also at the substrate have been determined as functions of discharge power and radial position. XPS analyses indicate a "selective oxidation" of tin compared to indium as well as a change of the surface composition during the sputter process.