Composites of nanoparticles/graphene sheets show an improved lithium storage capacity and cycling stability compared to bare graphene sheets (GSs). They are therefore considered as one of the promising candidates of anode materials for portable electrochemical energy storage devices requiring lightweight and ultrathin batteries. The practical application of these materials relies on the in-depth understanding of the origin of their improved performance. In this work, a composite of silver nanoparticles and graphene sheets (Ag/GSs) has been used as a model material to investigate the origin of the improved electrochemical performance by impedance, ex situ XPS and in situ Raman spectroscopy. We found that the Ag/GSs composite electrode has higher electrical conductivity than GSs. AgLix alloy was formed during the lithiation. Insertion of Ag nanoparticles into the interlayers between graphene sheets reduced the mean number of graphene stacking layers in the composite and provided a better site accessibility for Li+ insertion. Comparative in situ Raman measurements of them showed a completely reversible structural evolution of graphene sheets in Ag/GSs during the first lithiation/de-lithiation process, while for GSs the structural stability was worse. In combination, these effects are favorable for improving the reversible capacity and retaining the cycle stability of the Ag/GSs composite.