This paper studies the microstructure evolution of hydrogenated microcrystalline germanium (mu c-Ge:H) thin films deposited by plasma enhanced chemical vapor deposition (PECVD). There is an amorphous incubation layer formed in the initial deposition stage of mu c-Ge:H thin film. It is demonstrated that the thickness of incubation layer can be reduced by high hydrogen dilution and high discharge power method. However, at high hydrogen dilution, the deposition rate of mu c-Ge:H appears a sharply decrease. Using a high discharge power can compensate the deposition rate decrease but lead to decrease of average grain size and appearance of micro-void in the mu c-Ge:H thin film. In addition, by comparing two thickness groups of mu c-Ge:H thin films deposited at different discharge powers, it is noticed that the evolution process relates to the formation of crystal nucleuses. Thus, a power gradient method is proposed to understand the mechanism of nucleation and crystal growth in the initial deposition process of mu c-Ge:H films. Finally, by power gradient method, the incubation layer thickness of mu c-Ge:H thin films has been decreased to less than 6 nm. Moreover, Raman scattering spectra shows a 38 nm mu c-Ge:H film has a crystal fraction (X-c) of 62.4%. Meanwhile, the mobility of TFT devices shows the improved electrical property of mu c-Ge:H film deposited by power gradient method.