There remains a lack of systematic understanding of burn-through instability, which also restricts the development of evaluation criteria. Based on the designed test device, the dynamic evolution behavior and failure mechanism of burn-through instability were investigated by combining in-situ CCD observation and failure analysis. In the initial stage of burn-through instability, the penetrating defect initiated beneath the molten pool bulge and propagated toward the arc. Finally, the weld centerline cracks or pinholes contributed to the pipeline failure. Based on in-situ observation, the burn-through pinhole was found to be forming in the overheating zone. Cracks and pinholes were found simultaneously in the burn-through instability zone and played an essential role in the burn-through instability. It could be concluded that a major burn-through hole was mainly developed from the fusion line to the inner wall surface along the wall thickness. According to the failure behavior and phenomena, the in-service burn-through instability area was divided into four parts, which were the damage failure (DF) zone, burn-through instability (BTI) zone, propagation (P) zone, and secondary burn-through zone (BT2). The failure mechanisms of the damage failure (DF) zone and burn-through instability (BTI) zone were significantly affected by the high temperature and plastic strain. The failure behavior of the propagation (P) zone was influenced considerably by the DF and BTI zones. The secondary burn-through zone was mainly affected by the high temperature. The uneven distribution of chemical elements showed an important influence on defect initiation.