Metallic lithium reacts with biphenyl in 1,2-dimethoxyethane (DME) solvent at room temperature. This reaction has been studied using density functional theory (DFT) at the B3LYP level together with the 6-311++G (d,p) basis set. From the energy results of the corresponding optimized geometries for intermediate complexes, the reaction can be interpreted as a charge-transfer process between lithium and biphenyl followed by Li+ coordination with ether oxygens in DME. In addition, the experimentally observed vibrational bands can be unambiguously assigned and interpreted according to the normal modes calculated for the biphenyl-Li-DME complex. This organic complex solution has been demonstrated as a very effective chemical lithiation agent. V2O5 can be lithiated up to 1.45 lithium ions per formula. The lithiated V2O5 shows a high Li-extraction capacity of 173 mAh/g as cathode material for lithium ion batteries.