Pulsed laser fragmentation of microparticles (MPs) in liquid is a synthesis method for producing high‐purity nanoparticles (NPs) from virtually any material. Compared with laser ablation in liquids (LAL), the use of MPs enables a fully continuous, single‐step synthesis of colloidal NPs. Although having been employed in several studies, neither the fragmentation mechanism nor the efficiency or scalability have been described. Starting from time‐resolved investigations of the single‐pulse fragmentation of single IrO2 MPs in water, the contribution of stress‐mediated processes to the fragmentation mechanism is highlighted. Single‐pulse, multiparticle fragmentation is then performed in a continuously operated liquid jet. Here, 2 nm‐sized nanoclusters (NCs) accompanied by larger fragments with sizes ranging between several ten nm and several µm are generated. For the nanosized product, an unprecedented efficiency of up to 18 µg J−1 is reached, which exceeds comparable values reported for high‐power LAL by one order of magnitude. The generated NCs exhibit high catalytic activity and stability in oxygen evolution reactions while simultaneously expressing a redox‐sensitive fluorescence, thus rendering them promising candidates in electrocatalytic sensing. The provided insights will pave the way for laser fragmentation of MPs to become a versatile, scalable yet simple technique for nanomaterial design and development.