Soft chemistry techniques, such as ion exchange, hold great potential for the development of battery electrode materials that cannot be stabilized via conventional equilibrium synthesis methods. Nevertheless, the intricate mechanisms governing ion exchange remain elusive. Herein, we investigate the evolution of the long-range and local structure, as well as the ion (de)intercalation mechanism during electrochemical Li-to-Na ion exchange initiated from an O3-type lithium-layered oxide cathode. The in situ-formed mixed-cation electrolyte leads to competitive intercalation of Li and Na ions. While Li ion intercalation predominates at the beginning of initial discharge, Na ion cointercalation into a different layer results in ion redistribution and phase separation, with the emergence of a P3-Na phase alongside an O3-Li phase. Further, this study spatially resolves the heterogeneous nature of electrochemical ion exchange reactions within individual particles and provides insights into the correlations between local Ni redox processes and phase separation. Overall, electrochemical ion exchange leads to a mixed-phase cathode and alters its reaction kinetics. Those findings have important implications for the development of new metastable materials for renewable energy devices and ion separation applications.