Significance The study of correlated phenomena in 2D semiconductors opens up new pathways toward understanding and engineering material functionalities (such as thermoelectrics) in easily accessible van der Waals solids. Local structural defects such as vacancies inevitably exist in natural as well as synthetic TMD crystals and have been predicted to serve as magnetic impurities capable of enhancing the strongly correlated effect. Herein we discover unusual thermoelectric behavior in sulfur vacancy-enriched MoS ₂ by rationally selecting h -BN as the substrate. We demonstrate that the thermoelectric transport properties can be strongly manipulated by vacancy-induced Kondo hybridization. A significant enhancement of thermoelectric power factor by two orders of magnitude is achieved in the MoS ₂ / h -BN device.