We report the optical and magneto-optical properties of K2V3O8, an S=1/2 quasi-twodimensional Heisenberg antiferromagnet. Local spin density approximation electronic structure calculations are used to assign the observed excitations and analyze the field dependent features. Two large magneto-optical effects, centered at ∼1.19 and 2.5 eV, are attributed to field-induced changes in the V 4+ d → d on-site excitations due to modification of the local crystal field environment of the VO5 square pyramids with applied magnetic field. Taken together, the evidence for a soft lattice, the presence of vibrational fine structure on the sharp 1.19 eV magneto-optical feature, and the fact that these optical excitations are due to transitions from a nearly pure spin polarized V d state to hybridized states involving both V and O, suggest that the magneto-dielectric effect in K2V3O8 is driven by strong lattice coupling.