The size-dependent phase stability of gamma-Al2O3 was studied by large-scale molecular dynamics simulations over a wide temperature range from 300 to 900 K. For the gamma-Al2O3 crystal, a bulk transformation to alpha-Al2O3 by an FCC-to-HCP transition of the O sublattice is still kinetically hindered at 900 K. However, local distortions of the FCC O-sublattice by the formation of quasi-octahedral Al local coordination spheres become thermally activated, as driven by the partial covalency of the Al-O bond. On the contrary, spherical gamma-Al2O3 NPs (with sizes of 6 and 10 nm) undergo a crystalline-to-amorphous transformation at 900 K, which starts at the reconstructed surface and propagates into the core through collective displacements of anions and cations, resulting in the formation of 7- and 8-fold local coordination spheres of Al. In parallel, the reconstructed Al-enriched surface is separated from the stoichiometric core by a diffuse Al-depleted transition region. This compositional heterogeneity creates a disbalance of charges inside the NP, which induces a net attractive Coulombic force that is strong enough to reverse the initial stress state in the NP core from compressive to tensile. These findings disclose the delicate interplay between lattice distortions, stresses, and space-charge regions in oxide nanosystems. A fundamental explanation for the reported expansion of metal-oxide NPs with decreasing size is provided, which has significant implications for e.g. heterogeneous catalysis, NP sintering, and additive manufacturing of NP-reinforced metal matrix composites.