Normally-off AlGaN/GaN HEMTs have been fabricated by employing a recessed-gate structure and oxygen plasma treatment and outstanding improvement of V th variation is observed. The origin of the observed positive V th shift and reduced variation window induced by oxygen plasma treatment is investigated by computational methods. Formation energy calculations for oxygen inclusions in III–N reveal that a negatively charged V Al -O N complex in the AlGaN passivation layer can be a major source of V th variation in AlGaN/GaN hetero-structured devices. Calculated trap energy levels are used as the parameters of a device simulation, which indicated that significant V th variation can be induced by a small fluctuation in the AlGaN layer thickness and defect densities. Our theoretical investigation shows that normally-off AlGaN/GaN HEMTs having reliable V th variation can be produced by oxygen inclusions accompanying a recessed-gate structure.