Using a spectrum-imaging scheme based on scanning transmission electron microscopy electron energy-loss spectroscopy, we achieve real-space observation of the extraction and insertion behaviors of Li ions in a high-capacity positive electrode material, Li1.2Mn0.4Fe0.4O2 (Li2MnO3-LiFeO2 system), consisting of Fe- and Mn-rich nanodomains. The Li ions are first extracted from Fe-rich nanodomains and subsequently extracted from the whole region. After discharge, Li ion recovery occurs. Results indicate the role of nanodomain structures in activating both alpha-LiFeO2 and Li2MnO3, which are each inactive as pure bulk. We discuss mechanisms of high capacity and degradation associated with oxidation of the oxygen ions. (C) 2008 The Electrochemical Society.