The early stages of thermal oxidation of gallium nitride epilayers in dry O-2 have been studied using surface sensitive analytical techniques and transmission electron microscopy. Deconvolution of the Ga 3d core level spectra from X-ray photoelectron spectroscopy revealed peak positions representing gallium nitride, gallium oxide, and an intermediate phase. Transmission electron microscopy revealed an overlayer approximately 1.5-3.0 nm thick with registry to the (0001) GaN after dry oxidation at 800 degrees C for 1 h. Based on the data from X-ray photoelectron spectroscopy, this layer is believed to be a Ga(x+2)N3xO(3-3x) compound. Atomic force microscopy and transmission electron microscopy revealed the formation of discrete oxide crystallites on top of the oxynitride layer. The crystallites become more numerous and grow with continued oxidation.