Ambient-pressure X-ray photoelectron spectroscopy (APXPS) provides an effective way of tackling the challenge of detecting chemical states within complex systems. Here a fundamental understanding of the core-level shift (CLS) of water in the liquid/gas phase observed via APXPS is obtained with computational modeling at the molecular and electronic levels. The CLS value of ∼2 eV derived from experiments is reproduced by modeling in terms of the total shift and photon energy dependence. The contributions of collective electrical effects, including electrostatic potential, orbital deformation, and electronic polarization, to the CLS were further analyzed and discussed. Our results show that the CLS is dominated by the final state effect due to electronic polarization of the surrounding molecules following photoionization, while the peak broadening is mainly determined by the electrostatic potential, which belongs to an initial state effect. The physical insights and computational approaches could be further applied to study more complex molecules or materials.