Layered molybdenum disulfide (MoS2) has been studied for decades for its diversity of structure and properties, where the structural dynamic evolution during lithium intercalation is an important but still indistinct, controversial topic. Here the electrochemical dynamic process of MoS2 nanosheets upon lithium intercalation has been systematically investigated by in situ high-resolution transmission electron microscopy. The results indicate that the lithiated MoS2 undergoes a trigonal prismatic (2H)-octahedral (IT) phase transition with a lithium ion occupying the interlayer S-S tetrahedron site in the 1T-LiMoS2. A pseudoperiodic structural modulation composed of polytype superlattices is also revealed as a consequence of the electron lattice interaction. Furthermore, the shear mechanism of the 2H-1T phase transition has been confirmed by probing the dynamic phase boundary movement. The in situ real-time characterization at atomic scale provides a great leap forward in the fundamental understanding of the lithium ion storage mechanism in MoS2, which should be also of help for other transition metal dichalcogenides.