We discuss non-perturbative phase transitions, within the context of heterotic M-theory, which occur when all, or part, of the wrapped five-branes in the fivedimensional bulk space come into direct contact with a boundary brane. These transitions involve the transformation of the five-brane into a "small instanton" on the Calabi-Yau space at the boundary brane, followed by the "smoothing out" of the small instanton into a holomorphic vector bundle. Small instanton phase transitions change the number of families, the gauge group or both on the boundary brane, depending upon whether a base component, fiber component or both components of the five-brane class are involved in the transition. We compute the conditions under which a small instanton phase transition can occur and present a number of explicit, phenomenologically relevant examples.