The dehydrogenation mechanism during the incubation period in nanocrystalline MgH2 (low α: converted metal fraction and dα/dt) and the reasons for the occurrence of the incubation period at 320, 350, and 400 °C were investigated. Pre-existing Mg crystallites can enhance Mg nucleation during the incubation period, as suggested by the estimated activation energy for nucleation (12 ± 2 kJ per mol H). The released H-atoms enter MgH2 as interstitials, as indicated by the MgH2 unit-cell contraction, resulting in increased equatorial Mg-H bond length, decreased charge-density distribution in the interstitial region, as observed from the charge-density maps, and decreased H-H distance in the {001} plane up to the midway of the incubation period. Eventually, hydrogen vacancies are created, as indicated by the red shift in the Eg and A1g peaks of Raman spectra. The high estimated activation energy for the growth of Mg (209 ± 8 kJ per mol H) renders it difficult and explains the reason for the presence of an incubation period.