The chemistry of atomically thin two-dimensional layered transition metal dichalcogenides (TMDs) largely depends upon the presence of defect sites in their structures. Here, we demonstrate the role of defects of MoSe₂ nanosheets (NSs) in two different transformative reactions for the synthesis of MoSe₂–CdS nano-heterostructures (NHSs) and CdSe quantum dots (QDs). MoSe₂–CdS NHSs are synthesized via passivating the defects of MoSe₂ using thiol moieties, followed by the growth of CdS over the surface of MoSe₂ NSs. Furthermore, in the absence of thiols, we observe that defects in MoSe₂ NSs significantly accelerate the cation-exchange process upon direct exposure to the cadmium (Cd) precursor, resulting in the formation of CdSe QDs through cation displacement reaction (CDR). We have probed the transformation of MoSe₂ NSs into CdSe QDs through Raman and optical spectroscopic measurements. Furthermore, theoretical calculations under the framework of density functional theory (DFT) suggest that CDR is feasible on the surface of defect-rich NSs, which becomes unfavorable in the case of defect-free or thiol-passivated MoSe₂ NSs. These results provide new insights into understanding the multifaceted role of defects of TMDs in different transformative reactions.