We have investigated the charge-discharge mechanism in the first cycle and the origin of its high charge-discharge capacity for Li1.2Mn0.4Fe0.4O2 (0.5Li(2)MnO(3)center dot 0.5LiFeO(2)) positive electrode material of lithium ion batteries. Results reveal that oxygen loss occurs in the entire region of the Li1.2Mn0.4Fe0.4O2 particles composed of Mn-rich (Fe-substituted Li2MnO3) and Fe-rich (Mn-substituted LiFeO2) nanodomains during the first charge. Nanodomains of Mn-Li ferrites with a spinel structure start to be formed along the particle surfaces. During the first discharge, the extracted oxygen is partially reinserted preferentially into the Fe-rich nanodomains as oxide ions rather than in the Mn-rich nanodomains, and the proportion of the spinel nanodomains decreases. The origin of the high charge-discharge capacity might be ascribed to the participation of the oxide ions and neutral oxygen species in charge compensation by incorporation of the LiFeO2 component into Li2MnO3. Irreversible capacity at the first cycle can be caused by the irreversible loss of oxygen during the charge and irreversible structural changes throughout the cycle: the movements of transition metal ions inducing random cation-site occupation throughout the cycle, associated with the formation and incomplete disappearance of the spinel ferrite nanodomains which is almost electrochemically-inactive under the applied voltage range. (C) 2011 The Electrochemical Society. [DOI: 10.1149/1.3571420]