Two methods of reduction of V2O5 have been investigated: oxygen vacancy formation and lithium intercalation. The electronic structure, geometry, and energetics of these reduced systems are examined. Oxygen vacancies in bulk α-V2O5 have been investigated by using gradient-corrected density functional theory (GGA) and density functional theory corrected for on-site Coulomb interactions in strongly correlated systems (GGA+U). The GGA calculation predicts a delocalized defect electronic state. This disagrees with experimental evidence, which indicates that oxygen vacancies produce a localized reduced vanadium state in the band gap. The DFT+U results for U = 4.0 eV are consistent with available UPS and XPS data, indicating strong localization on the vanadium atoms nearest the vacancy, and showing reduced V(IV) species. Intercalation of Li in V2O 5, which has important potential applications in energy storage devices, is also reported at the GGA+ U level, using the value of U obtained from the oxygen-deficient calculation, and localized reduction is demonstrated. These results are again in agreement with available UPS data and crystallographic data, indicating good transferability of this value of U among the systems of interest. Calculated lithium intercalation energies for both the α- and γ-V2O5 phases are reported, and the structure and relative stability of the deintercalated γ-V 2O5 phase are also examined.