High velocity thermal spray Cr3C2–NiCr coatings are widely used to mitigate wear at high temperatures and in corrosive environments due to their superior oxidation and corrosion resistance relative to WC-Co coatings. This work explored a novel two–step process of first depositing a coating from feedstock particles having a high liquid phase content by shrouded plasma spraying (SPS), followed by controlled precipitation of the carbide grains through heat treatment. The appearance of additional melt from peritectic decomposition of Cr3C2, protection from oxidation by the shroud, as well as absence from water vapour of hydrocarbon combustion, created a new quality of microstructure. Heat treatment generated uniquely novel coating microstructures of continuous carbide within which pools of Ni alloy formed, in direct contrast to the conventional coating microstructure of isolated carbide grains encapsulated within a continuous Ni binder. The variation in the as-sprayed chemical and phase compositions between the SPS and HVOF coatings played a direct role in the dramatic microstructural variation seen with heat treatment. The mechanism of compositional and microstructural development with heat treatment in the SPS coating is contrasted to that in conventional HVOF coatings. Microhardness values above 1000 VHN300 demonstrate the potential of this new type of coating. Display omitted •Novel two-step Cr3C2–NiCr carbide composite microstructure formation mechanism.•Initially form a supersaturated Ni binder through in-flight carbide dissolution.•Heat treatment used to generate controlled carbide precipitation.•Ceramic matrix structure formed compared to traditional metal matrix composite.