Here, we quantify the relationship between microphase segregation and local structure development in thermoplastic polyurethanes. Samples were prepared with varying ratios of 4,4′‐methylene diphenyl diisocyanate (MDI) and 1,4‐butanediol (BDO) to polytetrahydrofuran (PTHF) and annealed at temperatures between RT–140 °C for 20 h each. Distinct populations of smaller and larger ordered domains are distinguished by pair distribution function analysis. The intermediate‐range order of nanoscale hard domains in the paracrystalline state (form I) is directly extracted and characterized. The results suggest that form I of the MDI‐BDO:PTHF system presents a conformational and packing order similar to the form III structure, typically obtained from stretching/annealing, but with limited spatial coherence of 3–7 nm. Heating above of the hard segments is necessary to achieve a substantial structural response from the annealing treatment. Increasing promotes purification of the soft phase via microphase segregation, coalescence of the hard blocks, and growth of paracrystalline phase, while a minority fraction of longer‐range ordered domains left over from production remains relatively constant. We observe a composition‐dependent decrease in the average nearest‐neighbor distance that can be correlated with the greater number of CC, CN, and CO bonds with increased hard segment content. A non‐linear deviation in the trend is observed to correlate with sample densification. The mechanical and thermal behavior of the samples is intimately tied to the segregation state.