Lithium reduction at a graphite electrode in molten lithium chloride was studied at temperatures from 650 to 900°C using cyclic voltammetry and chronoamperometry. It was found that, during cathodic polarization, lithium intercalation into graphite occurred before deposition of metallic lithium started. This process was confirmed to be rate-controlled by the diffusion of lithium in the graphite. When the cathodic polarization potential was more negative than that for metallic lithium deposition, exfoliation of graphite particles from the electrode surface was observed. This was caused by fast and excessive accumulation of lithium intercalated into the graphite, which produced mechanical stress too high for the graphite matrix to accommodate. The erosion process was abated once the graphite surface was covered by a continuous layer of liquid lithium. These results are of relevance to the mechanism of carbon nanotube and nanoparticle formation by electrochemical synthesis in molten lithium chloride.