The process and mechanism of photochemical instability of thiol-capped CdTe quantum dots (QDs) in aqueous solution were experimentally studied. After laser irradiation, the corresponding Raman bands of the Cd-S bond decreased obviously, indicating bond breaking and thiol detachment from the QD surfaces. Meanwhile, a photoinduced aggregation of QDs occurred with the hydrodynamic diameter <Dh> increased to hundreds of nanometers from an initial 20 nm, as detected with dynamic light scattering measurements. The bleaching of the photoluminescence of QDs under laser irradiation could be attributed to the enhanced nonradiative transfer in excited QDs caused by increased surface defects due to the losing of thiol ligands. Singlet oxygen (1O2) was involved in the photooxidation of QDs, as revealed by the inhibiting effects of 1O2 quenchers of histidine or sodium azide (NaN3) on the photobleaching of QDs. The linear relationship in Stern-Volmer measurements between the terminal product and the concentration of NaN3 demonstrated that 1O2 was the main pathway of the photobleaching in QD solutions. By comparing the photostability of QDs in C2C12 cells with and without NaN3 treatment, the photooxidation effect of 1O2 on photobleaching of cellular QDs was confirmed.