Efficient interfacial interaction between MoS₂ nanosheets and functionalized carbon nanotube (CNT) has been achieved via adopting an engineered, but facile hydrothermal process using ammonium hepta molybdate and thiourea as precursors. The importance of the route lies in enabling strong and easy coupling between Mo₇O₂₄^6–  anion and functionalized CNT at low pH, since the zeta potential of CNT has been found to be positive at low pH. The strong interfacial interaction between MoS₂ and CNT enhances the overall electronic conductivity and structural stability which leads to better electrochemical performance. The as-developed composite, with just ~8% carbon, possesses high Li-storage capacity, excellent rate capability and good cycle-life. Impedance spectra indicate least charge transfer resistance in the case of CNT-containing composites, with post-cycling Scanning Electron Microscopic (SEM) images confirms maintenance of integrity after repeated cycling. The cyclic voltammograms, along with x-ray diffraction and Extended X-ray Absorption Fine Structure (EXAFS), confirm that during lithiation step, MoS₂ gets converted to Li₂S and Mo via formation of Li_xMoS₂ (0 < x ≤ 1). The detection of formation of lithiation MoS₂ (Li_xMoS₂) is very important as the reaction processes through this intermediate. The asformed Mo does not transform back completely to MoS₂ during delithiation step, with only Li₂S gets delithiated to form elemental sulfur. In subsequent cycles, it is elemental sulfur which primarily gets lithiated and delithiated.