The “oxygen-rich” Ca2+ pre-intercalated bilayered vanadium oxide (CaVOnH) was synthesized via hydrothermal method and determined as a monoclinic structure with reasonable lattice parameters. CaVOnH achieves a first discharge capacity of 273 mAh g−1 with capacity retention of 91% at 50 mA g−1 in 0.8 m Mg(TFSI)2-85%PEG-15%H2O (polyethylene glycol, PEG), but limited rate capability due to the low ionic conductivity of electrolyte. Dimethyl sulfoxide (DMSO) is used as a co-solvent to tune the physical-chemical properties of aqueous Mg-ion electrolyte (AME), resulting in the reorganization of Mg2+ solvation and hydrogen bond network. The AME containing DMSO shows improved ionic conductivity, low viscosity, and high Mg2+ diffusion coefficient and allows CaVOnH and V2O5 to achieve a much-improved rate capability and capacity. Moreover, the reaction mechanism and reversibility of CaVOnH are elucidated by combining in operando and ex situ techniques. The results demonstrate that CaVOnH undergoes 2-phase reaction and solid solution, the variation of oxidation state and the local environment of vanadium, and reversible formation/decomposition of MgF2 cathode electrolyte interface during Mg2+ (de)intercalation, where MgF2 originated from the decomposition of TFSI-.