Phosphoaluminate cement (PAC) is a kind of new cementitious material which has many special properties compared to Portland cement (PC). PAC sets quickly and develops early-high strength. In order to investigate the hydration mechanism, the hydration products and microstructure of PAC were studied with x-ray diffraction (XRD), electron scanning microscope (SEM) and electrochemical impedance spectroscopy (EIS). Heat evolution of PAC was also measured. The results show that the hydration mechanism of PAC is different from Portland cement, which is caused by the special minerals including CxP, CA(P), phase L, and so on. The main hydration products of PAC are calcium phosphorus aluminates hydrate (C-A-P-H), calcium phosphate hydrate (C-P-H), aluminates hydrate (C-A-H), the corresponding hydration microcrystal as well as gels. Also, there is no calcium hydroxide produced during hydration. The hydration procedure of PAC is divided into four stages which are dissolution and induction, acceleration, deceleration, stabilization.