Oxcarbazepine (OXC), as a potent antiepileptic drug, is widely used in recent years, but its residue is potentially harmful to the environment. Although ozonation is a high-efficient technology for chemical oxidation during water treatment, it cannot completely mineralize organic matters, but partially transforms them into some unidentified by-products. In order to provide more insight into OXC ozonation process, the influencing factor, transformation mechanism and potential toxicity were comprehensively investigated in this study. The results showed that the optimal ozonation temperature was 20 °C with a pseudo-first-order reaction rate constant of 0.161 min−1. The increase of pH significantly enhanced OXC degradation, while the presence of bicarbonate caused a remarkable negative effect, manifesting that hydroxyl radical (OH) oxidation should play an important role in OXC ozonation. Moreover, transformation mechanism was further elucidated based on the identification of ten OXC-related by-products using UPLC-Q-TOF-MSn, which mainly consisted of electrophilic substitution, N-heterocyclic ring cleavage and re-arrangement, hydroxylation, carbonylation, demethoxylation and deamidation, etc. The toxicity evaluation, using US Environmental Protection Agency Toxicity Estimation Software Tool (US-EPA TEST), suggested that most identified by-products were probably more toxic than OXC itself. Besides, further experiments, by measuring inhibitory effect of ozonated mixture on Vibrio fischeri bioluminescence, demonstrated that by-products with higher toxicity tended to be accumulated under a short reaction time. Taken together, the present investigation provided valuable information for further understanding OXC ozonation process, and suggested that special attention should be paid to the control and elimination of toxic transformation by-products in future studies.