Electrical characteristics of vertical Schottky barrier diodes (SBDs) fabricated on as-grown and oxygen annealed β-Ga2O3 (001) epilayers were investigated. SBDs on as-grown epilayer showed anomalous reverse leakage characteristics. Annealing of β-Ga2O3 epilayers in an oxygen-containing environment up to 40 min immensely reduced the reverse leakage current. The specific on-resistance (Ron) of the SBD remained very close to that of the as-grown sample for annealing up to 20 min and increased almost by 25 times for annealing up to 40 min. Simulations of reverse tunneling characteristics, assuming oxygen vacancy type surface states, explained both the magnitude and the shape of anomalous reverse leakage. The diffusion of oxygen during annealing passivated the oxygen vacancy type surface states at first (for 20 min annealing)-resulting in two orders of reduction in leakage with minimal change in Ron. Further annealing (up to 40 min) subsequently reduced the epilayer net carrier concentration from 3.3 × 1016 to 2.9 × 1015 cm−3 -resulting in immense change in both reverse leakage and Ron. Thus, oxygen annealing proved to be a vital technique for the passivation of surface states and to reduce the net carrier concentration, which allows the modulation of reverse leakage of β-Ga2O3 SBDs.