Iodine-induced stress corrosion cracking (I-SCC) has long been proposed as a primary cause of pellet cladding interaction failures in light water reactors. The I-SCC process has been studied in great detail but its precise mechanism and the influence of local microstructure remains uncertain. In this study, a large-scale investigation was undertaken of a sample produced by a novel rig for I-SCC using analytical three-dimensional characterization and then it was related to atomistic simulations describing the orientation dependence of iodine segregation and its influence on various types of boundaries. In situ monitoring capability enabled an I-SCC crack to be arrested in a compact tension specimen machined from Zircaloy-4 plate before failure, and serial sectioning by a plasma-focused ion beam allowed detailed characterization of an entire cracked region consisting of nearly 1,000 grains. By relating the crack path to the local microstructure three-dimensionally, new insights could be gained about the crack propagation during I-SCC. The crack was observed to be primarily transgranular in nature, progressing along basal planes; but away from the crack tip, a significant proportion of intergranular cracking was also observed. By careful analysis, this study was able to relate the nature of the crack progression directly to the individual grain orientations and their level of deformation. Particular grain orientations were observed to be resistant to I-SCC attack and resulted in crack deflection. The formation of twins in the vicinity of the crack was also observed and the role of twins discussed. Complementary density functional theory modeling examined the effects of iodine impurities at different positions within the microstructure. Simulations suggested that transgranular basal cleavage was energetically accessible and might be preferable to cleavage on prismatic planes, even if this would result in significant deviation of the crack path. These results are discussed with respect to the experimental observations.