We report on processing and characterization of lateral n-channel 4H-SiC MOSFETs. We find that growing the gate oxide in nitrous oxide (N2O) ambient results in a significant enhancement of the electron inversion channel mobility. The peak field effect mobility varies between 30 and 90 cm2/Vs in these normally off devices while transistors with a conventional wet or dry gate oxide exhibit mobilities ranging between 1-10 cm2/Vs. The mobility enhancement is correlated with a significant reduction of the density of shallow interface states with energies close to the SiC conduction band edge. This is revealed from capacitancevoltage (C-V) data and thermally stimulated current measurements (TSC). Furthermore; we find that the ohmic contact annealing results in an increase in the density of interface states which most likely results in a reduction of the inversion channel mobility.