C5F10O has been widely studied as a great potential alternative gas to SF6, a most potent industrial greenhouse gas that is predominantly used as an insulating medium in electrical equipment, due to its excellent insulation properties and environmental characteristics. Several experimental and theoretical attempts have been made and have obtained valuable results in the last five years. However, few researchers have thoroughly investigated the decomposition mechanism and the main decomposition pathways of the C5F10O/H2O system, which are important for evaluating the insulating and environmental performance and providing guidance for engineering application. Herein, the decomposition characteristics and mechanism of C5F10O in the presence of moisture content was studied by density functional theory calculations. The main types of decomposition products with relatively high content have been summarized based on the evaluation of cleavage reactions and the influence of moisture. The electrical, environmental and safety performances of the primary products were analyzed. CF3CFCF3, CF3CO, CF3, OH and H radicals are the most primary particles formed by dissociation of C5F10O and H2O. These particles may further convert into more than 20 kinds of relatively stable products, among which C4F10, C3F8, C6F14, C3HF7, C2F6 and CO are primary ones. In addition, COF2, CO2, CO and C3F6 can be used as components for estimating the degree of failures. The existence of H2O has a negative impact on the insulation and environmental performance. In particular, trace water has a direct contribution to the production of highly toxic COF2, CO and HF. Thus, it is necessary to strictly control the moisture and develop application standards before any industrial application of C5F10O in electrical equipment.