The layered LiNi0.8Co0.2O2 system has drawn interest as a cathode material for lithium battery high-power applications. In order to determine the charge compensation mechanism and structural perturbations occurring in the system during cycling, in situ battery X-ray absorption fine-structure spectroscopy (XAFS) measurements were conducted on a cell cycled at a moderate rate and typical Li-ion battery operating voltages (3.0-4.1 V). The XAFS data collected at the Ni and Co edges approximately every 30 min during cycling revealed details about the response of the cathode to Li insertion and extraction. These measurements on the LixNi0.8Co0.2O2 cathode (0.29 < x < 0.78) demonstrated that the material retains excellent structural short-range order leading to superior cycling. Interestingly, the Co and Ni atoms behaved differently in response to Li insertion/extraction. This study corroborates previous work that explains the XAFS of the Ni atoms in terms of a Ni3+ Jahn-Teller ion. An analysis of the metal metal distances suggests, contrary to a qualitative analysis of the X-ray absorption near-edge structure (XANES), that Co3+ is oxidized to the maximum extent possible (within the Li content range of this experiment) at x = 0.47 +/- 0.04, while Ni3+ is oxidized in equal and linear increments proportional to the battery's state-of-charge. XAFS results on discharge show an almost completely reversible process with charge compensation through Co4+ and Ni4+ site reduction and a return to the original structural state.