We present a multiscale ab initio study of electronic and transport properties of two-dimensional graphene after epoxide functionalization via ozone treatment. The orbital rehybridization induced by the epoxide groups triggers a strong intervalley scattering and changes dramatically the conduction properties of graphene. By varying the coverage density of epoxide defects from 0.1 to 4%, charge conduction can be tuned from a diffusive to a strongly localized regime, with localization lengths down to a few nanometers long. Experimental results supporting the interpretation as a metal-insulator transition are also provided.