Metal oxides hold the promise of high-capacity anodes for Li-ion batteries. Lithiation of binary metal oxides proceeds with two typical mechanisms: insertion and conversion. We characterize the two-step lithiation behavior of α-MoO3, namely, Li intercalation in the layered α-MoO3 leads to the formation of crystalline Li2MoO3 in the early stage of lithiation, and further Li insertion coverts Li x MoO3 to metallic Mo and amorphous Li2O. The intercalation process is thermodynamically more favorable and is accompanied with a minor volumetric change, while the conversion reaction is kinetically slow and induces large deformation. Furthermore, instead of showing significant Li-embrittlement as seen in typical oxides, α-MoO3 remains defects free despite the nearly 100% repetitive volumetric change during lithiation cycles. The reaction mechanism, structural evolution, and mechanical behaviors are unveiled through coordinated in-situ transmission electron microcopy experiments on α-MoO3 nanobelts and first-principles computational studies. The results provide fundamental perspectives in the course of developing reliable high-capacity electrodes for Li-ion batteries.