The microstructure of oxide films formed on Zircaloy-4 and Alloy No. 3, which has a composition similar to ZIRLO™, was investigated by high resolution transmission and scanning electron microscopy, and by scanning probe microscopy after corrosion tests performed at 360°C/18.6 MPa in deionized water or lithiated water with 0.01 M LiOH. The microstructural evolution of the oxide films was analyzed by comparing the microstructure at different depths in the oxide layer. The defects, consisting of vacancies and interstitials, such as points, lines, planes, and volumes, were produced during the oxide growth. Monoclinic, tetragonal, cubic, and amorphous phases were detected and their coherent relationships were identified. The characteristic of oxide with such microstructure had an internal cause, and the temperature and time were the external causes that induced the microstructural evolution during the corrosion process. The diffusion, annihilation, and condensation of vacancies and interstitials under the action of stress, temperature, and time caused stress relaxation and phase transformation. It was observed, in the middle of the oxide layer, that the vacancies absorbed by grain boundaries formed pores to weaken the bonding strength between grains. Pores formed under compressive stress lined up along the direction parallel to the compressive stress. Thus, cracks developed from the pores were parallel to the oxide/metal interface. Li⁺ and OH⁻ incorporated in oxide films were adsorbed on the wall of pores or entered into vacancies to reduce the surface free energy of the zirconium oxide during exposure in lithiated water. As a result, the diffusion of vacancies and the formation of pores were enhanced, inducing the degradation of the corrosion resistance. The relationship between the corrosion resistance of zirconium alloys and the microstructural evolution of oxide films affected by water chemistry and composition is also discussed.