Li-rich layered materials are important cathode compounds used in commercial lithium ion batteries, which, however, suffers from some drawbacks including the so-called voltage fade upon electrochemical cycling. This study employs novel transmission X-ray microscopy to investigate the electrochemical reaction induced morphological and chemical changes in the Li-rich Li2Ru0.5Mn0.5O3 cathode particles at the meso to nano scale. Combined X-ray spectroscopy, diffraction and microscopy experiments are performed to systematically study this cathode material's evolution upon cycling as well as to establish a comprehensive understanding of the structural origin of capacity fade through 2D and 3D fine length scale morphology and heterogeneity change of this material. This work suggests that atomic manipulation (e.g. doping, substitution etc.) or nano engineering (e.g. nano-sizing, heterogeneous structure) are important strategies to mitigate the internal strain and defects induced by extensive lithium insertion/extraction. It also shows that maintaining the structural integrity is the key in designing and synthesizing lithium-rich layered materials with better cycle stability.