SF6 is widely used in all kinds of high-voltage electrical equipment because of its excellent insulation and arc-extinguishing performance. However, this compound leads to serious greenhouse effect, which harms the environment. Many research institutions are now actively in search of SF6 alternative gas. C5F10O has attracted much attention as an alternative gas with low global warming potential (GWP) and excellent dielectric strength. In this paper, we analyzed the possible decomposition paths of C5F10O under micro-water environment through density functional theory. We also evaluated the ionization parameters and toxicity of the decomposition products. The results show that OH• and H• produced by H2O exhibited a catalytic effect on the decomposition of C5F10O. CF4, C2F6, C3F6, C3F8, C4F10, C5F12, C6F14, C3F7COH, C3F7OH, CF3COH, C3F7H, and CF3OH were produced in the micro-water environment. Based on molecular configuration calculation, the ionization parameters of these products were inferior to perfluorocarbons, such as C3F8, leading to reduced insulation performance of the system. Moreover, CF2O and HF are hazardous to human health and equipment safety. Results will provide a basis for further study of the insulation characteristic of the C5F10O gas mixture under micro-water condition to guide the formulation of their relevant international standards prior to engineering applications.