An experimental and theoretical study on microwave (2.45 GHz) plasma enabled assembly of carbon nanostructures, such as multilayer graphene sheets and nanoparticles, was performed. The carbon nanostructures were fabricated at different Ar-CH4 gas mixture composition and flows at atmospheric pressure conditions. The synthesis method is based on decomposition of the carbon-containing precursor (CH4) in the "hot" microwave plasma environment into carbon atoms and molecules, which are further converted into solid carbon nuclei in the "colder" plasma zones. By tailoring of the plasma environment, a controlled synthesis of graphene sheets and diamond-like nanoparticles was achieved. Selective synthesis of graphene flakes was achieved at a microwave power of 1 kW, Ar and methane flow rates of 600 sccm and 2 sccm respectively, while the predominant synthesis of diamond-like nanoparticles was obtained at the same power, but with higher flow rates, i.e. 1000 and 7.5 sccm, respectively. Optical emission spectroscopy was applied to detect the plasma emission related to carbon species from the 'hot' plasma zone and to determine the main plasma parameters. Raman spectroscopy and scanning electron microscopy have been applied to characterize the synthesized nanostructures. A previously developed theoretical model was further updated and employed to understand the mechanism of CH4 decomposition and formation of the main building units, i.e. C and C2, of the carbon nanostructures. An insight into the physical chemistry of carbon nanostructure formation in a high energy density microwave plasma environment is presented.