In the present study, a multi-modal approach consisting of in-situ photoluminescence, Raman, and UV-Vis absorption spectroscopic studies is carried out along with chemiresistive sensing to unveil the mechanism of NH3 gas sensing by V2O5 nanoparticles in ambient air. V2O5 nanoparticles with an average size of 49 nm show a superior sensor response of 17 ± 1.5 % towards 1 ppm of NH3 gas with a response and recovery time of 96 s and 45 s, respectively. The photoluminescence and UV-Vis absorption studies in the presence of NH3 reveal electron doping to a new energy level at 1.84 eV, resulting in conduction band filling and increase in the optical band gap. The intensity of the photoluminescence spectrum shows an increase in the presence of NH3 gas as a result of this electron doping. The sensor response from the optical sensing carried out by in-situ photoluminescence study is 43 % for 40 ppm of NH3 gas. The vanadyl oxygen site is the most active in the sensing process, as evident by a selective enhancement in the intensity of V–O (vanadyl) bond vibration. This study gives an experimental evidence for the changes in optical and electronic properties of V2O5 on the adsorption of NH3 gas molecules.