Transition metal oxides (TMOs) play a crucial role in lithium-ion batteries (LIBs) due to their high theoretical capacity, natural abundance, and benign environmental impact, but they suffer from limitations such as cyclability and high-rate discharge ability. One leading cause is the lithiation-induced volume expansion (LIVE) for "conversion"-type TMOs, which can result in high stress, fracture and pulverization. Using carbon layers is an effective strategy to provide effective volumetric accommodation for lithium-ion (Li+) insertion; however, the detailed mechanism is unknown. In order to clarify the working mechanism of nanoscale LIBs, herein, the discharge reactions in a nanoscale LIB were investigated through in situ environmental transmission electron microscopy (ETEM). Visualization of the Li+ insertion process of MnO@C nanorods (NRs) with core/shell structure (CSS) and internal void space (IVS) was achieved. The LIVE occurred in a consecutive two-step mode, i.e., a LIVE of the carbon layer followed by a co-LIVE of the carbon layer and MnO. No volume contraction of the IVS was observed. The IVS acted as a buffer relieving the stress of the carbon layer. The carbon layer with IVS simultaneously improved the cyclability and the high-rate discharge ability of the electrode, pointing to a promising route for building better TMO electrode materials.