Clusters of diamond-phase carbon, known as nanodiamonds, exhibit novel mechanical, optical and biological properties that have elicited interest for a wide range of technological applications. Although diamond is predicted to be more stable than graphite at the nanoscale, extreme environments are typically used to produce nanodiamonds. Here we show that nanodiamonds can be stably formed in the gas phase at atmospheric pressure and neutral gas temperatures o100°C by dissociation of ethanol vapour in a novel microplasma process. Addition of hydrogen gas to the process allows in flight purification by selective etching of the non-diamond carbon and stabilization of the nanodiamonds. The nanodiamond particles are predominantly between 2 and 5 nm in diameter, and exhibit cubic diamond, n-diamond and lonsdaleite crystal structures, similar to nanodiamonds recovered from meteoritic residues. These results may help explain the origin of nanodiamonds in the cosmos, and offer a simple and inexpensive route for the production of high-purity nanodiamonds.