What happens when the upward in‐cloud (IC) breakdown transitions into horizontally expanding extension? Optical observations of this transition in IC lightning have not previously been reported. We identify the radio and optical signatures of this transition in low‐frequency (LF) magnetic, very high frequency interferometric and space‐borne optical measurements. For initial IC development in stratiform clouds, the ratio of 337/777.4 nm radiance is above unity prior to the transition but is almost always below unity after the transition. In particular, the 337 nm radiance drops significantly while the 777.4 nm radiance remains almost invariant after the transition, suggesting when the dominant illumination process of IC leaders changes from cold streamer discharges to a likely stepped leader. Furthermore, this transition in the LF and optical measurements resembles the reported changes in the cloud‐to‐ground measurements from initial leader to stepped leader, indicating that the initial leader may be physically different from the stepped leader. Plain Language Summary The development of negative leaders within clouds remains intriguing and merits optical observation imperatively. Here, we report the optical observations of initial in‐cloud (IC) leaders from a top view by a space‐borne Atmosphere‐Space Interactions Monitor on the International Space Station. After analyzing the dynamics of some upward IC flashes from very high frequency interferometry, we identify a clear transition in the initial development of IC leaders from upward propagation to sideways extension. We show that this transition also has repeatable signatures in the LF power density (1–300 kHz bandwidth) and optical waveforms. In our cases, the transition starts when the 337 (blue)/777.4 nm (red) brightness ratio drops significantly. The 337 nm radiance dominates the optical emissions prior to the transition but pronouncedly declines after the transition compared with the 777.4 nm radiance. The weakening of 337 nm radiance during the transition indicates a change in the dominant illumination processes of initial IC development. In addition, a similar variation identified from the observations of the initial IC and cloud‐to‐ground leaders suggests a connection between our transition and the reported transition from initial leader to stepped leader. Key Points Optical, very high frequency, and low‐frequency observations are combined to analyze the transition from upward to horizontal propagation of initial in‐cloud lightning A drop in the optical blue‐to‐red ratio indicates when the dominant illumination process changes from streamers to likely stepped leader We find for in‐cloud lightning that the upward initial leader and the horizontal stepped leader could be physically different