A semiconductor device using oxide semiconductor with favorable electrical characteristics, or a highly reliable semiconductor device is provided. A semiconductor device is manufactured by: forming an oxide semiconductor layer over an insulating surface; forming source and drain electrodes over the oxide semiconductor layer; forming an insulating film and a conductive film in this order over the oxide semiconductor layer and the source and drain electrodes; etching part of the conductive film and insulating film to form a gate electrode and a gate insulating layer, and etching part of the upper portions of the source and drain electrodes to form a first covering layer containing a constituent element of the source and drain electrodes and in contact with the side surface of the gate insulating layer; oxidizing the first covering layer to form a second covering layer; and forming a protective insulating layer containing an oxide over the second covering layer.