Reactive hot pressing of TiC–B4C precursors was undertaken at 1800 °C to produce TiB2 with carbon inclusions. Atomic mechanisms of titanium diboride nucleation, as well as sponge-like carbon inclusions and submicron platelets of graphite precipitation have been investigated. Precursor grain size, green body composition and synthesis time were varied to analyze phase transformation. The carbon left after B4C high temperature decomposition is shown remaining as graphite sponge-like inclusions. Ab-initio calculations confirm that the boron atoms accumulation on (111)TiC plains leads to tensile stress. The developed stress cleaves TiC grains and enhances further reaction. Most of carbon expelled from TiC during its transformation into TiB2 forms graphite submicron platelets.