Lithium iron oxide nanoparticles with the layered rocksalt structure (O3-LiFeO2) were synthesized by ion exchange from size-controlled α-NaFeO2 particles. 40-nm-sized O3-LiFeO2 exhibited intercalation characteristics for cell voltages in the range 2.0–4.5V. A plateau region around 4V was observed in the first charge curve. Mechanistic studies using Mössbauer spectroscopy and X-ray diffraction measurements revealed that the oxidation state of Fe did not change and that a phase transition from rhombohedral to cubic symmetry occurred during the initial charging process, indicating oxygen release with lithium deintercalation. The cubic phase showed a reversible charge/discharge capacity. To investigate the detailed mechanism, LiFeO2−d with oxygen-vacancy defects was directly synthesized using CaH2 as a reducing agent. The phase with oxygen-vacancy defects contained a larger amount of the cubic phase and had a narrower plateau region during the first charge cycle than LiFeO2 nanoparticles, which is similar to LiFeO2 nanoparticles after initial charging. These results demonstrate that the extraction of oxygen leads to the cation-distribution changes in LiFeO2 during the initial charge process.