Silicon can host a large amount of lithium, making it a promising electrode for high-capacity lithium-ion batteries. Recent experiments indicate that silicon experiences large plastic deformation upon Li absorption, which can significantly decrease the stresses induced by lithiation and thus mitigate fracture failure of electrodes. These issues become especially relevant in nanostructured electrodes with confined geometries. On the basis of first-principles calculations, we present a study of the microscopic deformation mechanism of lithiated silicon at relatively low Li concentration, which captures the onset of plasticity induced by lithiation. We find that lithium insertion leads to breaking of Si-Si bonds and formation of weaker bonds between neighboring Si and Li atoms, which results in a decrease in Young's modulus, a reduction in strength, and a brittle-to-ductile transition with increasing Li concentration. The microscopic mechanism of large plastic deformation is attributed to continuous lithium-assisted breaking and re-forming of Si-Si bonds and the creation of nanopores.