The effects of ion intercalation in transition metal chalcogenides like MoS2 has been well studied, although the nature of this interaction is not clearly known. In this Article, we show that defect-ion interaction is one of the key parameters that control many of the electrical, optical, structural, and electrocatalytic properties of MoS2. The results show for the first time that modulation of the concentration of intrinsic defects in MoS2 containing an excess of ‘S’ atoms in the lattice through Li+ insertion can lead to a new type of semiconductor-to-insulator-to-metal electronic phase transition with a concomitant change in the electrical conductivity from p-type to n-type, and a reversible 1T → 2H → 1T structural phase transformation. Using near-infrared photoluminescence and X-ray photoelectron spectroscopy measurements to directly monitor defect-ion interactions, it is shown that the observed changes are a direct result of changes in the electronic structure resulting from passivation of S-excess defects by Li+ and subsequently from the formation of electrochemically induced S-deficient vacancy defects in MoS2. The effects of these broad range modulation on the catalytic rates of oxygen and hydrogen evolution reactions are shown. The structure–property–activity correlation shown here has important implications for chalcogenides-based semiconductors in general.