Microstructure evolution in Nd12.8Fe80.1B6.6Ga0.3Nb0.2 alloy powders at different hydrogen pressures during the hydrogen-disproportionation process PH2HD has been studied in order to understand the underlying mechanism of the texture development during the dynamic hydrogen-disproportionation–desorption-recombination (d-HDDR) process. Transmission electron microscopy showed that Fe2B grains “memorize” the crystallographic orientation of the initial Nd2Fe14B phase and transfer it to the recombined Nd2Fe14B grains in the highly textured sample. 3-D tomography of backscattered electron SEM images showed that recombined Nd2Fe14B grains nucleate at the interfaces of Fe2B/NdH2 phases, which grow through the interfaces of NdH2/α-Fe phases during the DR process. Boron segregation was found at the NdH2/α-Fe interfaces, which serve as a boron source for the growth of the recombined Nd2Fe14B grains. The mechanism of the texture development is discussed based on the microstructure observations and the corresponding evolution of magnetic properties.