Cathodic passivation is mainly caused by the hydrolysis of anhydrous magnesium chloride. However, the phase transition process of magnesium chloride hydrates is still insufficient although it is important in industrial technology. Here, the thermal decomposition processes of MgCl2·H2O have been investigated using molecular dynamics simulations and density functional theory methods. Two kinetic types of reaction pathways were proposed which can be classified as the intramolecular model and intermolecular model. The calculations show that the intermolecular scheme was easier occurred as it provided a lower energy barrier pathway. Moreover, a theoretical structure of the hydrolysis product (MgOHCl) was determined and then modified in consideration of the experimental information. With the detailed orientation relationship between MgOHCl and MgCl2 examined by transmission electron microscopy, MgOHCl structure was confirmed to be an atomic alteration and distorted variant of the MgCl2 structure. These results indicate the validity of structure transition based on the reaction pathway and provide important atomistic-scale insight into product formation in these materials.