Mg2Ge is a promising new anode material for lithium ion batteries. The ab initio pseudopotential method with the plane wave expansion of the crystal wave function was employed to study the lithiation properties of anode material Mg2Ge. The reaction sequence of lithiation in Mg2Ge have been calculated. It was found that Li ions firstly occupy the interstitial sites until the interstitial sites are full, and then substitute the Mg sites until half of the Mg sites are replaced to form the phase of Li2MgGe. The calculation results also show that the crystal volume firstly expands and then shrinks as the number of Li ions increases. The changes of crystal volume are very big during the whole process which is the cause of bad cycle performance of the material. The electronic structures are also analyzed, which indicates that the host material changes from semiconducting to metallic then to semiconducting with the increase of Li intercalations.