Hydrodeoxygenation (HDO) is a catalytic process applied for the reduction of oxygen levels in hydrocarbons from bio-derived feedstock as part of the processing into renewable fuel. The MoS2-based hydrotreating catalysts, currently being applied for the HDO reaction, are exposed to a complex environment consisting of O-rich hydrocarbons and water, which adversely impacts the state and stability of the catalyst. Here, we analyze the structural and chemical state changes of MoS2 in HDO-relevant conditions using a combination of surface-sensitive techniques applied to a planar model system consisting of supported and structurally well-defined single-layer MoS2 nanoparticles supported on Au(111). As observed by scanning tunnelling microscopy and near-ambient pressure X-ray photoelectron spectroscopy (NAP-XPS), the exposure to mbar pressure of H2O at 600 K induces clear changes in both the shape and size of the MoS2 nanoparticles, explained by a preferential oxidation and etching of MoS2 edges. MoOx is observed on the surface due to the spatial separation of the oxide and etched sulfide phase. Interestingly, when H2/H2O gas mixtures are applied, the sulfur reduction and oxidation of MoS2 appear to be decoupled, indicating that the removal of edge S species is not a prerequisite for oxidation. Furthermore, the formed MoOx showed a preferred reduction of the oxide over the sulfide. Importantly, the atom-resolved imaging reveals that the progressive etching and phase segregation of MoS2 maintains access to pristine edge sites of the single-layer MoS2, explaining why HDO activity can be maintained even for highly oxidized catalysts.