The transformation mechanism of hexagonal delta phase from the disordered bcc gamma phase has not been reported before in the Zr-rich U–Zr alloy system. With the help of X-ray diffraction, transmission electron microscopy (TEM) and high-resolution TEM analyses it was shown that the gamma to delta conversion takes place by the lattice collapse mechanism of omega transformation. It was also ascertained that a higher aging temperature or time promotes the growth of all four variants of the delta phase within a parent gamma grain. In addition, ab initio electronic structure calculations showed that the bcc to hexagonal transformation, involving partial ordering of the parent bcc phase followed by (111) plane collapse, is energetically favorable.