"Some of the other moons have liquid oceans and so it is worth looking more closely at them for signs of life," Andrew Coates, of University College London and lead scientist of the study, told BBC News.
It is thought the oxygen is being produced via interactions between Saturn's powerful radiation belts and Dione's water ice. The radiation breaks the water molecules down, liberating oxygen into the moon's exosphere.
This most recent discovery will no doubt give a boost to scientists lobbying for sending missions to the gas giant's satellites to search for alien life as, like the presence of liquid water, the presence of oxygen could support microscopic lifeforms on other, more habitable moons.
The Cassini research has been published in the journal Geophysical Research Letters.