The structural evolution of SnO2 fine powder prepared by a sol-gel method upon heat-treatment was investigated by using x-ray diffraction. Electrochemical measurements showed that the reversible capacity of lithium ion reaction with the SnO2 electrode could be as high as 600 mAh/g. The mechanism of lithium ion reaction was studied by ex situ x-ray diffraction and Raman spectroscopy. Two processes were revealed : a substitution reaction, in which SnO2 is reduced and Sn is formed, followed by LiySn alloy formation.