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Oxygen is a common impurity in AlN samples. Using hybrid density functional calculations, we investigate the role of substitutional oxygen (ON) in the optical absorption. We construct configuration coordination diagrams for ON and related complexes. Our results indicate that an optical transition involving ON− (a DX center) gives rise to an absorption band peaked at 2.22 eV, suggesting it is a source of the absorption band with an onset at ∼ 2 eV observed in oxygen-containing samples. We also propose that neutral ON–DX complexes can form, which would give rise to absorption peaking at 3.06 eV. In addition, we find that oxygen, in spite of its DX character, may behave as an “optically shallow donor” and be involved in optical transitions from deep defect states to the conduction band. This observation provides an alternative physical mechanism for the optical absorption bands observed in AlN samples in the visible and ultraviolet (UV) region.