Surface oxidation can potentially influence transport properties of thermoelectric materials and service performance of thermoelectric devices. Here, the oxidation mechanism of the (0001) surface of a widely used p-type TE material, Bi0.5Sb1.5Te3 (BST), was investigated using spherical aberration corrected scanning transmission electron microscopy (STEM). Combining atomic resolution STEM and density function theory (DFT), it was revealed that oxidation occurs at room temperature in the dry air through O diffusion into the surface quintuple layer, facilitating formation of both cation and anion vacancies, weakening the Bi-Te and Sb-Te bonds, leading to oxidation product Sb2O3, amorphous Te, and Bi-rich Bi2Te3. Formation of a thin O-rich cation-deficient quintuple layer on the surface and the Bi-rich BST region can significantly reduce the interfacial reaction between BST and Ni electrode, as the reaction layer thickness is reduced by 75% after the surface oxidation. This work provides essential structural information on surface oxidation mechanism and its influence on properties and performance of TE materials and devices.