We report the structural evolution and the diffusion processes which occur during the phase transformation of nanoparticles (NPs), ε-Co to Co₂P to CoP, from a reaction with tri-n-octylphosphine (TOP). Extended X-ray absorption fine structure (EXAFS) investigations were used to elucidate the changes in the local structure of cobalt atoms which occur as the chemical transformation progresses. The lack of long-range order, spread in interatomic distances, and overall increase in mean-square disorder compared with bulk structure reveal the decrease in the NP’s structural order compared with bulk structure, which contributes to their deviation from bulk-like behavior. Results from EXAFS show both the Co₂P and CoP phases contain excess Co. Results from EXAFS, transmission electron microscopy, X-ray diffraction, and density functional theory calculations reveal that the inward diffusion of phosphorus is more favorable at the beginning of the transformation from ε-Co to Co₂P by forming an amorphous Co-P shell, while retaining a crystalline cobalt core. When the major phase of the sample turns to Co₂P, the diffusion processes reverse and cobalt atom out-diffusion is favored, leaving a hollow void, characteristic of the nanoscale Kirkendall effect. For the transformation from Co₂P to CoP theory predicts an outward diffusion of cobalt while the anion lattice remains intact. In real samples, however, the Co-rich nanoparticles continue Kirkendall hollowing. Knowledge about the transformation method and structural properties provides a means to tailor the synthesis and composition of the NPs to facilitate their use in applications.