Crystallographic imperfections significantly alter material properties and their response to external stimuli, including solute-induced phase transformations. Despite recent progress in imaging defects using electron and X-ray techniques, in situ three-dimensional imaging of defect dynamics remains challenging. Here, we use Bragg coherent diffractive imaging to image defects during the hydriding phase transformation of palladium nanocrystals. During constant-pressure experiments we observe that the phase transformation begins after dislocation nucleation close to the phase boundary in particles larger than 300 nm. The three-dimensional phase morphology suggests that the hydrogen-rich phase is more similar to a spherical cap on the hydrogen-poor phase than to the core-shell model commonly assumed. We substantiate this using three-dimensional phase field modelling, demonstrating how phase morphology affects the critical size for dislocation nucleation. Our results reveal how particle size and phase morphology affects transformations in the PdH system.