Laser keyhole welding of 42CrMo in air and argon atmospheres has been studied both experimentally and numerically. Significant macroscale difference is observed for welding carried out under argon and air shielding. Fusion zone of welding under argon shielding has a "▽" shape, while it has a "U" shape for welding in air. The surface of the weldment is smoother for welding in argon when compared with that in air. Oxygen effect is proposed to account for the experimental results. A three-dimensional heat transfer model with a predefined keyhole is developed to study the heat transport and fluid flow in laser welding process. The variation of weld pool geometry and temperature history is investigated for different oxygen concentrations. It is found that a small amount of oxygen could significantly modify the weld pool dimension, while keeping the temperature history of materials, and thus the microstructure, in the fusion zone and heat-affected zone unchanged.