A spherical O3‐type NaNi0.5Mn0.5O2 cathode, composed of compactly‐packed nanosized primary particles, is synthesized by the coprecipitation method to examine its capacity fading mechanism. The electrochemical performance cycled at different upper cut‐off voltages demonstrate that the P3′ to O3′ phase transition above 3.6 V is primarily responsible for the loss of the structural stability of the O3‐type NaNi0.5Mn0.5O2 cathode. The capacity retention is greatly improved by avoiding the P3′ to O3′ phase transition, and 94.2% and 90.7% of the initial capacities (108.9 mAh g−1 at 3.35 V and 125.4 mAh g−1 at 3.58 V) are retained after 100 cycles. During cycling at 4.0 V, rapid capacity fading (75.5% of 147.5 mAh g−1 after 100 cycles) is observed. The poor Na+ ion intercalation stability is directly attributed to the extent of microcracks caused by the abrupt change in the lattice structure. Microcracks traversing the entire secondary particle compromise the mechanical integrity of the cathode and accelerate electrolyte infiltration into the particle interior, causing the subsequent degradation of the exposed internal surfaces. Thus, suppressing microcracks in secondary particles is one of the key challenges for improving the cycling stability of hierarchical structured O3‐type NaNi0.5Mn0.5O2 cathodes. The capacity retention of the O3‐type NaNi0.5Mn0.5O2 cathode is strongly dependent on the extent of microcracking within the secondary particles resulting from the anisotropic volume change during charge/discharge cycling caused by the P3′–O3′ phase transition occurring above 3.6 V. The microcracks allow the penetration of the electrolyte into the particle interior, resulting in chemical damage via electrolyte attack.