Light scattering microscopy reveals previously undetected topographic instabilities in phospholipid monolayers at the air/water interface far below the collapse pressure. Following compression through the fluid --> condensed phase transition in monolayers of dipalmitoyl phosphatidylcholine, after the disappearance of the fluid phase, the contact regions between condensed domains acquire static roughness as indicated by enhanced light scattering. With further compression, a nanoscale budding process occurs within the roughened regions, while the interiors of the condensed domains remain flat and retain their domain shapes. At monolayer collapse, the buds proliferate across the entire interface, suggesting that the buds detected at lower pressures represent spatially confined fluctuations into the collapse phase. The confinement of static roughness formation and budding to domain contact regions indicates that these topographic instabilities originate from packing defects created where adjacent domain edges with conflicting molecular orientations grow together juring the fluid --> condensed phase transition.