This chapter presents a comprehensive review of the interaction between nitrous oxide (N2O) gas and a two-dimensional molybdenum diselenide (MoSe2) monolayer (ML), with a focus on its electronic, magnetic, and optical properties. N2O is a highly toxic greenhouse gas, significantly more potent than CO2, and its detection is vital due to its detrimental environmental and health effects. Its accumulation in the atmosphere impacts air quality and is linked to neurotoxic effects in humans. Given the pressing need for sensitive gas detection technologies, this chapter explores the potential of MoSe2 ML as an active sensing material. Supported by both experimental and computational insights, it is shown that N2O adsorption significantly alters the material’s electronic structure—evident through changes in the band structure, density of states, adsorption energy, and charge transfer. These effects highlight the suitability of MoSe2 ML for gas sensing applications. Remarkably, N2O adsorption induces magnetism in the otherwise non-magnetic MoSe2 ML, transitioning it into a magnetically dilute semiconductor (MDS) with anti-ferromagnetic characteristics, making it relevant for spintronic devices. Additionally, the optical properties of the material—such as the absorption coefficient, dielectric function, and refractive index—also exhibit substantial shifts upon gas interaction and transition metal doping (e.g., Fe, Mn). These modifications position MoSe2 ML as a versatile material for optoelectronic sensors and photodetectors. In the context of this book, the chapter contributes to the broader narrative of advanced optical sensing by showcasing how 2D materials—especially transition metal dichalcogenides—can complement noble metal-based hybrids in gas detection platforms. The findings support the development of sensitive, tunable, and multifunctional sensor systems in emerging optical sensor technologies.