The capacity fading mechanism of lithium-ion cell was studied by disassembling the charge–discharged cells and analyzing their electrodes using scanning electron microscopy (SEM) and X-ray photoelectron spectroscopy (XPS), etc. Cu ion dissolved from current collector of anode and Mn ion dissolved from LiMn2O4 spinel (cathode) were all existing in solid electrolyte interface (SEI) layer on carbon anode as Cu2O and MnO or MnO2, respectively. These depositions of Cu and Mn oxides did not uniformly deposited on the anode side, and most of them were detected on the carbon surface nearby to the separator side. The SEI layer is hard and about 0.3μm in thickness. Furthermore, the cycling performance of the cells can be improved by adding 1,2,3-benzotrazole (a corrosion inhibitor of Cu) before assembling the cell, it then coordinates strongly with Cu ions into the electrolyte. From the results, it is obvious that the existing of Cu oxide as well as Mn oxide in the SEI layer, which blocks the normal intercalation of the lithium ions, is one of the factors for the capacity fading of the cells.