We have discovered spin-state transition (S = 2 to S = 5/2) of Co ions due to Mg substitution in the Ca3Co2O6 apparent in the magnetic susceptibility, XPS, and first-principles study. We also examine the effect of Mg substitution on the magnetic and electronic structure of Ca3Co2O6 by first- principles calculations. It involves generalized gradient approximation with Coulomb interaction (U) in exchange-correlation energy functional. Our study shows a reasonable agreement between effective magnetic moment (μef f ) determined from the Curie–Weiss fit with that from the XPS analysis and first-principles calculations study. We have attributed the decrease in positive intra-chain exchange interaction constant (J1/kB
) to the antiferromagnetically coupled induced Co4+ ions (S = 5/2) arising from the Mg2+ ions substitution. The in-field meta-magnetic transitions in the isothermal M(H) curves below the critical field (Hc
) have been accurately mapped and successfully explained by the change in magnetic entropy (ΔS) calculations and Arrott plots. Electronic structure study reveals hole-type doping of Mg atom, and the Fermi level (EF
) shifts below. Density of state and band structure calculation indicates strong hybridization between partial states of Co-3d and O-2p orbitals for the Mg-doped compound due to which the band crossing at Fermi level is observed, and a hole- type Fermi surface is formed.