Orientation relationships between the growth direction of carbon nanotubes and encapsulated residual iron-containing particles have been determined using transmission electron microscopy. The nanotubes that are prepared by Fe-catalysed chemical vapour deposition on sol-gel Fe(NO3)(3)-tetraethyl orthosilicate substrates are the helical multiwall type. Nanoscale particles of both the low-temperature alpha-Fe (ferrite) and high-temperature gamma-Fe (austenite) were found in the cavity of the carbon nanotubes with < 001 >(alpha), < 011 >(alpha) and < 110 >(gamma) parallel to the tube growth direction, respectively. Cementite Fe3C, the most abundant Fe-containing phase in present samples was also found to be entrapped in nanotubes with [100](Fe3C) or [100](Fe3C) parallel to the tube axis. The metastable retention of gamma-Fe particles at room temperature is ascribed to the strain energy induced at the particle-nanotube interface due to volume expansion upon the gamma- -> alpha-Fe phase transformation. The decomposition of initially high aspect-ratio, rod-shape particles into a string of ovulation, while encapsulated in carbon nanotubes is accounted for by the Rayleigh instability. Ovulation leading to reduced particle size has also contributed to increase the surface energy term that counterbalances the total free energy change of phase transformation from gamma- to alpha-Fe and further aids to the metastable retention of gamma-Fe.