Thin films often exhibit fascinating properties, but the understanding of the underlying mechanism behind such properties is not simple. This is partially because of the limited structural information available. The hurdle in obtaining such information is especially high for textured thin films such as Mg-rich MgxTi1-x, a promising switchable smart coating material. Although these metastable thin films are seen as solid solution alloys by conventional crystallographic methods, their hydrogen-induced optical transition is hardly understood by a solid solution model. In this study, we collect atomic pair distribution function (PDF) data for a Mg0.7Ti0.3Hy thin film in situ on hydrogenation and successfully resolve TiH2 clusters of an average size of 30 Å embedded in the Mg matrix. This supports the chemically segregated model previously proposed for this system. We also observe the emergence of a previously unknown intermediate face-centered tetragonal phase during hydrogenation of the Mg matrix. This phase appears between Mg and MgH2 to reduce lattice mismatch, thereby preventing pulverization and facilitating rapid hydrogen uptake. This work may shed new light on the hydrogen-induced properties of Mg-rich MgxTi1-x thin films.