Disclosed is a method to manufacture a thin film transistor having an oxide semiconductor as a channel formation region. The method includes; forming an oxide semiconductor layer over a gate insulating layer; forming a source and drain electrode layers over and in contact with the oxide semiconductor layer so that at least portion of the oxide semiconductor layer is exposed; and forming an oxide insulating film over and in contact with the oxide semiconductor layer. The exposed portion of the oxide semiconductor may be exposed to a gas containing oxygen in the presence of plasma before the formation of the oxide insulating film. The method allows oxygen to be diffused into the oxide semiconductor layer, which contributes to the excellent characteristics of the thin film transistor.