Absorption spectra of iodine molecule in water confirm the formation of H₂O-I₂ C-T complex with a shifted iodine visible band at 461 nm and a charge transfer (C-T) band at 202 nm. Iodine oxidizes water leading to the formation of I^-₃ ion. Absorption bands of I^-₃ the ion at 351 nm and 284 nm are observed in Iodine solution in water. The concentration of I^-₃ is about 1% of H₂O-I₂ C-T complex when iodine is dissolved in water with e value of 16771M^-1cm^-1 at 351 nm. DFT calculation shows that two I₂ molecules can bind to two lone pairs of O in H₂O nearly in tetrahedral geometry with stabilization energy - 8.3 kcal/M.But, one I₂ bonded to one of the lone pairs on oxygen and one H₂O molecule is hydrogen-bonded to the second lone pair on oxygen in nearly tetrahedral geometry is more stable with energy -8.5 kcal/M. By plotting experimental ionization energies of H₂O and I₂ from photoelectron spectroscopy, MOs of H₂O-I₂ C-T complex is constructed. C-T band at 202 nm (6.14 eV) is the excitation from the stabilized sp³ hybridized oxygen lone pair in H₂O to destabilized σ* orbital of I₂ in the H₂O-I₂ C-T complex.