We have investigated the effect of oxygen on ethylene oligomerization activity and selectivity toward 1-hexene (1-C6) and 1-octene (1-C8) using Cr(III) diphosphine catalyst system. The addition of a small amount of oxygen (5 ppm) can improve the activity from 1.75×106 g·(mol Cr·h)−1 to as much as 2.38×106 g·(mol Cr·h)−1, greatly reducing the amount of polyethylene from 1.88 wt% to 0.59 wt%, and maintaining the overall selectivity of 1-C6 and 1-C8. The variation trend of the system performance with temperature and n(Al)/n(Cr) was basically the same before and after. The maximum activity of oxygen modified MMAO activated system reached 2.14×106 g·(mol Cr·h)−1. Through the analysis of NMR and UV–vis DRS results, oxygen mainly reacts with MMAO or residual TMA to produce larger steric bulk oligomers and oxidized oligomers. The larger oligomers resulting in more steric hindrance around the active Cr species, disfavor the attack of impurity small molecules and long chain molecules on the active center, thereby inhibiting the reaction inactivation and the PE formation. The modification MMAO affected the catalyst species, which may also affect the catalyst performance, especially at high O2 concentration.