We report the first direct observation of phase decomposition in a luminescent alloy and show that this decomposition, allied to quantum confinement enhancements, accounts for the surprisingly high efficiency of InGaN-based diodes manufactured by Nichia Chemical Industries. Hence nanostructure, rather than composition, is responsible for the success of these devices. A common nanostructure, in the form of nearly pure InN quantum dots, occurs across a large range of average indium content in InGaN and leads to a universal scalability of the optical spectra. [S0031-9007(98)08055-7] PACS numbers: 85.60. Jb, 78.66.Fd, 85.30.Vw While Nichia Chemical Industries have recently commercialized blue and green light-emitting diodes (LEDs) based upon InGaN quantum wells [1,2], and demonstrated long-lived blue lasers at room temperature [3], rather little is known about the origin of the luminescence from such devices, or its apparent indifference to a huge density of structural defects [4]. Much of the discussion of the operational characteristics of Nichia diodes contradicts a theoretical demonstration [5] that In is, to a large extent, insoluble in GaN at typical growth temperatures. Hence the emission spectrum of, say, a "50% alloy of InGaN grown at 700 ± C" should actually contain two components at high and low energy, corresponding to the twocomponent phase decomposition demanded by thermodynamics. This decomposition of the emission spectrum has been observed for the first time in Nichia diode electroluminescence spectra. In addition, we observe a shift of the low-energy component due to quantum confinement in nanocrystalline inclusions of nearly pure InN, which leads to a dominant emission band in the blue or green spectral region.Although (partial) phase segregation has been shown to be present in InGaN alloys by a number of authors [6-8], we argue here that cation segregation takes an extreme form in Nichia diodes, and find that the origin of the luminescence in these devices is best described as emission from quantum dots of approximately constant composition-approaching InN-and having radii that increase monotonically with the average In incorporation.The intimate connection between exciton localization and luminescence in semiconductors is now well established. Luminescence occurs when the dwell time of an exciton in a localized site exceeds its radiative decay time. The process of luminescence therefore involves an exchange of energy between a massive stationary particle (the exciton) and a massless particle traveling out of the semiconductor at the speed of light (the photon). The interaction is well described in systems without disorder by the polariton model, but it should be noted that each luminescence event involves at least one defect, in the form of a surface. Since excitation, in contrast to luminescence, maps the joint density of states (JDOS), there is an energy shift (usually called the Stokes' shift) between peaks of luminescence and absorption in solid state systems with spatial energy disorder (s...