The partial discharge in the converter transformer will cause the carbonization of the insulating paper. The high concentration of free carbon particles generated from the insulating paper during the operation of the converter transformer will cause partial discharge, which will aggravate the insulation performance deterioration. For the bi‐directional interaction of carbon particles and partial discharge, the mechanism of insulating paper carbonization caused by partial discharge and the effect of carbon particles on the dielectric strength of oil paper are studied. In this paper, we construct a simulation system of amorphous cellulose to study the carbonization mechanism of insulating paper from the microscopic level. Furthermore, we build a DC voltage experimental platform to carry out partial discharge damage tests of oil‐paper insulation models and to measure the changes in the breakdown voltage with different carbon particle concentrations and diameters. The results show that partial discharge speeds up the cleavage rate of cellulose, generates low molecular hydrocarbon gas and water molecules, and the carbon atoms rearrange into PAH‐like molecules with aliphatic side chains. The surface of the insulating paper will carbonize, then form free carbon particles after peeling off. Afterward, the carbon particles in insulating oil accumulate in the high electric field area and attach to the insulating paper, which will cause electric field distortion and reduce the dielectric strength of oil‐paper insulation. With the increase of carbon particle concentration and diameter, the breakdown voltage of oil‐paper insulation decreases gradually. © 2023 Institute of Electrical Engineer of Japan and Wiley Periodicals LLC.