Diamond is an excellent material for applications in acoustics, optics, electronics, and thermal management. However, their extremely low material removal rate results in very long processing durations. Therefore, it is essential to improve polishing efficiency while maintaining excellent polishing quality. In this study, a comparative experiment on the polishing of polycrystalline diamonds using diamond wheels under normal and oxygen-enriched environments has been conducted. It is found that the material removal rate reaches 2.29 μm/h under oxygen-enriched environment, which is over nine times the removal rate of 0.25 μm/h under normal condition, while maintaining good surface quality. The characterization results of atomic force microscopy indicate that, within a 30 μm×30 μm measurement area, the surface roughness Sa of the polished diamond under the oxygen-enriched environment could reach below 2 nm. Meanwhile, scanning electron microscopy (SEM) and transmission electron microscopy (TEM) observations reveal no significant structural damage. Furthermore, the material removal mechanism during diamond polishing was analyzed by X-ray photoelectron spectroscopy (XPS), the results indicate that the diamond during polishing undergoes a phase transition from sp³ to sp² structures under mechanical action, with the resultant phase transition layer being removed under both mechanical and oxidative effects. Additionally, it is observed that in the oxygen-enriched environment, the phase transition layer is removed more rapidly, indicating that oxidation plays a more significant role in the diamond material removal process.