Two expansive soils were studied from a microscopic point of view to better understand the physicochemical, mineralogical, and microstructural changes that occur during Class C Fly Ash (CFA) stabilization. These changes were then related to macroscopic mechanical characteristics in order to better understand the mechanisms controlling expansive soil behavior. CFA stabilization achieved similar results as lime by activating cation exchange and pozzolanic reactions, which resulted in flocculation of clay particles and creation of interconnected assemblages. It was found that the CFA stabilization process reduced the plasticity index (PI), clay size fraction (CF), percent of swell (Δh), swell pressure (ps), and volumetric water contents of the soil water characteristic curves (SWCCs), and increased the unconfined compressive strength (qu). X-ray diffraction (XRD) analyses showed that there were negligible changes in mineralogy caused by CFA stabilization; however, there were reductions in the total amount of clay minerals. Significant changes in microstructure were revealed, however, as qualified from scanning electron microscopy (SEM) images. The existence of iron-oxide coating was verified by both XRD and energy-dispersive X-ray spectroscopy (EDXS) analyses. The coating resulted in chemically stable aggregates that resisted dispersion with hexametaphosphate. The combined effects of flocculation and coating reduced the water-retention property of the stabilized soils, decreased their swell potential, and increased the soil strength.