Research into the mechanisms of formation of granules produced from heterogeneous-wetting powder blends is still at an early stage. Granulation of non-wetting powders is a common problem in pharmaceutical applications. The discovery of liquid marbles by the spreading of non-wetting powder over a liquid droplet is a promising way to solve the wettability problem of non-wetting powder. Hollow granules are formed upon drying of liquid marbles. In this work experimental investigations using different formulation and process parameters were designed to understand the mechanism of liquid marble and hollow granule formation. This work has helped to produce a qualitative and semi-quantitative prediction of internal microstructure behaviour of new formulations from fundamental properties. This research investigated the required conditions to form stable, spherical, hollow granules that form from liquid marbles in the nucleation stage. Wetting and non-wetting model powder mixtures (glass beads silanised to give different wetting properties) with different types and viscosities of liquid binder (polyethylene glycol) were used. Nucleation experiments were performed outside the mixer where drops of liquid binder were placed on a powder bed. Different mixing time, primary particle size and shearing forces were investigated. Different granule size and internal microstructure were produced using different formulation and process parameters. Studies concluded that the binder viscosity and shearing force are critical factors in producing spherical hollow granules. Mixtures of wetting and non-wetting pharmaceutical powder (red iron oxide/efavirenz) were granulated with different concentrations of liquid binder (dextran). Different operational conditions were applied by changing mixing time and shearing forces. Granule size, morphology, internal microstructure and ingredients distribution inside the granules were identified. The effect of binder viscosity and shearing forces were found to be essential parameters in controlling granule size, internal microstructure and ingredient distribution. Two novel regime maps were developed. A mechanistic understanding of internal microstructure of granules produced using wettable powders (contact angle < 90°) was proposed. It was found that solid granule internal structure is produced with a decrease of the immersion time of powder particles into the liquid droplet. The immersion time of low wettability particles (contact angle > 90°) into the liquid droplet is infinite, and the only way the particles can move through the droplet surface is by high impact forces. Therefore, for the first time, a mechanistic understanding of internal microstructure behaviour of granules produced using low wettability powders is introduced. A hollow granule internal microstructure was produced with decrease inertial force, which led to decrease in the immersion rate of powder particles inside the liquid droplet. This research has established that longer immersion time and lower level of inertial forces applied are successful in producing hollow granules. This is expected to facilitate progress in creating hollow granules as both products and precursors for a wide range of structured powder-liquid products in the pharmaceutical, detergents, food and other advanced materials industries.