To address recent electron paramagnetic resonance experiments showing a distortion at the H2- site lowering the defect symmetry from cubic to tetragonal in CaO crystal, we have investigated the defect-induced lattice relaxation of an H2- ion in CaO with local Oh and D 4h symmetry respectively using a first-principles embedded-cluster approach based on the local density approximation of density functional theory. We show that the ground state in Oh symmetry is an orbitally degenerate t1u state, while in D4h symmetry it is an a1 state. This Jahn-Teller distortion of the CaO:H2- system is consistent with the experimental findings. We find that the position of the HOMO t1u root in the bandgap is sensitive to the inclusion of the 3d orbital at the nearest-neighbour Ca2+ sites suggesting a bonding interaction. The Fermi contact spin density at the proton is in good agreement with the observed values, while a significant discrepancy is found at the Ca2+ sites. Mulliken analysis indicates that the spin density at the proton is mainly due to the core polarization of the H2- 1s orbital.