It could then be made available for breathing or used as rocket fuel to power return flights to Earth.
If the experiment is successful it will mark a major step towards making Mars habitable for human colonies in the future.
Mars's atmosphere contains just 0.13% oxygen, compared with 21% on Earth.
Nasa Acting Chief Administrator Robert Lightfoot told Futurism: "Mars 2020, has an experiment where we are going to try and actually generate oxygen out of the atmosphere on Mars, clearly that’s for human capability down the road."
The US government department also has plans to build a magnetic shield around Mars and to install a nuclear reactor on the planet.
Space in perspective: this is how big the Earth really is compared to the other planets in our Solar System
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They hope to launch a lunar space station near the Moon that could act as a starting point for missions to the rest of the solar system.
Mr Lightfoot said it was a logical next step after the success of the International Space Station, adding: "When you look at our plans today [for getting to Mars], we use the International Space Station as much as we can."
South African-born American businessman Elon Musk has announced plans to colonise Mars and said an optimistic cost would be around $10billion per person.
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