Nanocomposition of molecular crystal ammonia borane (AB) by embedding it in mesoporous silica leads to a remarkable enhancement of the hydrogen storage properties. To investigate the nature of a nanophase AB, we used atomic pair distribution function (PDF) analysis of synchrotron X-ray powder diffraction data to follow the structural evolution of AB embedded within MCM-41 at temperatures ranging from 80 to 300 K. We found that the nanophase AB residing within the mesoporous scaffold does not undergo the structural phase transition at 225 K that was observed in the neat molecular crystal. Rather, it stays in the tetragonal phase over a wide temperature range of 110 to 240 K and starts to lose structural correlation above 240 K. This finding strongly suggests that nanoconfinement of AB within mesoporous scaffolds stabilizes the high-temperature disordered tetragonal phase at a much lower temperature. PDF analyses of composite materials composed of excess AB (i.e., AB:MCM-41 > 1:1) indicates that the excess AB forms aggregates outside the mesoporous scaffold and that these aggregates have structural properties similar to neat AB, that is, the orthorhombic-to-tetragonal structural phase transition is observed at 225 K upon warming. These results may provide important insight into the mechanism behind the enhanced hydrogen storage properties of this system.