Diagenetic illite from the Proterozoic Chuanlinggou Formation, China, has been investigated using the techniques of transmission electron microscopy (TEM), selected-area electron diffraction (SAED), X-ray diffraction (XRD), scanning electron microscopy (SEM), and energy-dispersive spectrometer (EDS). Polytypes of 1Md and 1M illite coexist in the diagenetic illite. The 1Md polymorph is predominant in the <0.2 μm size fraction, which has high Al and low Mg contents and irregular crystal shapes. Lattice-fringe imaging and one-dimensional structural imaging show abundant structure defects. The 1Md illite has both layer and sheet terminations caused by edge dislocations and layer displacements along c* caused by screw dislocations. These observations indicate that the disordered 1Md structure of the diagenetic illite resulted from abundant dislocations. The dislocation serves as nucleation sites for the illite nano particles to spontaneously nucleate in the initial stage of illite formation. Such a nucleation process obeys the Ostwald ripening rule. The illite only shows a 1.0 nm thickness for each layer in high-resolution TEM images, which suggests that the illite crystals have no mixed smectite layer, and the 1Md illites are authigenic and not illitized from smectite or illite/smectite. Heterogeneous nucleation led to directly crystallization of the 1Md illite during the initial growth of illite in shale under a low-temperature and tectonic-stress-free environment. The results have implications for interpreting the distribution of 1Md illite in sedimentary rocks.