The mechanism of two-photon induced oxidation of single-layer graphene on Si/SiO2 substrates is studied by atomic force microscopy (AFM) and Raman microspectroscopy and imaging. AFM imaging of areas oxidized by using a tightly focused femtosecond laser beam shows that oxidation is not homogeneous but oxidized and nonoxidized graphene segregate into separate domains over the whole irradiated area. The oxidation process starts from point-like “seeds” which grow into islands finally coalescing together. The size of islands before coalescence is 30–40 nm, and the density of the islands is on the order of 1011 cm–2. Raman spectroscopy reveals growth of the D/G band ratio along the oxidation. Sharpness of the D-band which persists over a large range of oxidation and the maximal value of the intensity ratio of the D- and G-bands (∼0.8) indicates that graphene oxidation proceeds by an increase of the oxidized area rather than progression of oxidized areas to fully disordered structure. A phenomenological model is developed which explains the observations. According to the model, the probability for oxidation of a site next to an already oxidized site is 5 orders of magnitude higher than oxidation of pristine graphene. Irradiation of an extended area by raster scanning leads to a formation of an irregular nanomesh of oxide islands with a narrow size distribution. The phenomenological model yields similar results as the experiment. This study forms a basis for controlled use of two-photon oxidation for tailoring properties of graphene and patterning it with submicrometer resolution.