Ultrafast laser‐excitation of lithium niobate (LiNbO3) crystal has triggered numerous photonic applications through the structural transitions in LiNbO3. However, the explanations for ultrafast laser‐induced modification of LiNbO3 have remained phenomenological, lacking a convincing in‐depth understanding of the fundamental laser‐lattice interaction process. Based on ab initio simulations, it is demonstrated that photoexcited anharmonic phonons play a significant role in influencing the lattice structure of LiNbO3. Harnessing the real‐time time‐dependent density functional theory, it is revealed that the excitation of TO4 phonons via electric‐phonon coupling triggers displacement‐induced lattice oscillations during multiphoton ionization. These oscillations give rise to multistage structural strains, resulting in alterations of the refractive index. Significantly, these modifications exhibit sensitivity to the incident laser energy. Experimentally, using the waveguide technique and micro‐Raman spectroscopy, the correlation between local refractive index, lattice volume density, and phonon vibrational modes has been established, exhibiting good consistency with theoretical predictions. This work provides an effective means to understand the ultrafast excitation of phonons and relaxation processes of the lattice in dielectric crystals.