Y3Al5O12:Ce (YAG:Ce) phosphors are extensively used in the field of white light-emitting diodes (LEDs) due to their efficient luminescent properties. To optimize the performance of YAG:Ce phosphors, a comprehensive understanding of their synthesis and structural evolution is essential. This paper presents a direct in situ transmission electron microscopy (TEM) /scanning TEM (STEM) investigation on the transformation process of a precursor comprising nanocrystalline CeO2 dispersed in an amorphous Y-Al oxide matrix into crystalline YAG:Ce particles. The study reveals that nanocrystalline CeO2 particles dissolve completely in the Y-Al oxide matrix at a temperature above 900 °C, while YAlO3 (YAP)-type crystalline particles with Al2O3 phase in grain boundaries are observed above 1000 °C. Finally, YAG:Ce-type crystalline particles are formed above 1180 °C. Atomic-resolution energy-dispersive X-ray spectroscopy (EDS) elemental mapping demonstrates that the doped cerium (Ce) atoms occupy the same atomic sites as yttrium (Y). Photoluminescence measurements validate the efficient luminescent properties of the obtained YAG:Ce phosphor.