Two kinds of chemically modified silicone oil, diisooctyl phosphate-terminated silicone oil (UCP204) and dioctyl dithiophosphate-terminated silicone oil (UCT2003), were synthesized. The tribological properties of silicone oil were evaluated using an SRV tribometer, and the worn surface and chemical composition were examined by scanning electron microscopy (SEM) coupled with energy dispersive spectroscopy (EDS). The friction coefficients of UCP204 and UCT2003 were reduced by approximately 62.7% and 56.7% compared with untreated silicone oil. The results indicated that the incorporation of phosphorus and/or sulfur could significantly enhance the tribological performance of modified silicone oil. Benefiting from their unique chemical structure, chemically modified silicone fluids also exhibit good dispersion stability and excellent anti-foaming properties, which are mainly attributed to the low surface tension properties imparted by the silicone backbone and the better dispersion stability provided by the dialkyl dithiophosphate group in chemically modified silicone fluids. It is also found that lubricants containing modified silicone oil remain clear after three months of storage and still maintain good anti-foaming properties.