The niobium surface is almost always covered by a native oxide layer which greatly influences the performance of superconducting devices. Here we investigate the highly stable niobium oxide overlayer of Nb(110), which is characterized by its distinctive nanocrystal structure as observed by scanning tunneling microscopy (STM). Our ab initio density functional theory (DFT) calculations show that a subtle reconstruction in the surface niobium atoms gives rise to rows of fourfold coordinated oxygen separated by regions of threefold coordinated oxygen. The fourfold oxygen rows are determined to be the source of the nanocrystal pattern observed in STM and the two chemical states of oxygen observed in core-level x-ray photoelectron spectroscopy (XPS) are ascribed to the threefold and fourfold oxygens. Furthermore, we find excellent agreement between the DFT calculated electronic structure with scanning tunneling spectroscopy and valence XPS measurements.