Attempts to use aluminum-based anodes in lithium-ion batteries often fail due to fast capacity fading. Generally, this has been attributed to pulverization of the electrode and the large volume changes associated with the phase transformation between the crystalline α and β phases of Li-Al alloys. In this study, these transformations were investigated in aluminum films that were lithiated either electrochemically or via direct reaction with lithium metal. Scanning electron microscopy was used to image the samples at different stages of (de)lithiation. By imaging the same locations before and after each step, it can be seen that alloying between Li and Al proceeds from distinct nucleation sites. In situ and ex situ observations reveal that the α-to-β phase transformation is highly anisotropic and causes strong distortions of the film morphology, but only a relatively small amount of mechanical damage such as cracks and delamination. Comparisons between films that were lithiated to 70% and 100% of the theoretical capacity of LiAl indicate that the critical, irreversible damage is more dependent on depth of discharge than on the volume contraction caused by delithiation. Our observations challenge the pessimistic view that pulverization is unavoidable during the phase transformations of the Li-Al system.