Mechanism of the nanometric size niobium carbide synthesis from mesostructured niobium oxide precursor is proposed. High-resolution transmission electron microscopy (HRTEM) and selected area electron diffraction (SAED) combined with in situ X-ray diffraction (XRD) were successfully used to study phase transitions during formation of niobium carbide. The results showed the importance of oxygen diffusion during the entire carburization process; it was evidenced that oxygen diffusion may be a rate-determining step. The proposed model involves the dynamic balance between processes of carbon diffusion into the bulk of the precursor and oxygen diffusion towards the gas phase (both running in spatially separated areas) and rationalizes the observed differences between nano- and micro-crystalline niobium carbide formation.