The modification on the microstructure of diamond films due to the addition of H2 species into the Ar/CH4 plasma was investigated. While the Ar/CH4 plasma produced UNCD films with equiaxed grains (about 5 nm in size), the (Ar-H2)/CH4 plasma produced acicular-shaped grains (about 5 × 20 nm in size). Transmission electron microscopy studies indicate that these acicular-shaped grains actually are agglomerates of diamond flakes, which contain stacking faults lying on the (111) lattice plane. Presumably, the incorporation of H2 species in the plasma leads to partial etching of hydrocarbons adhered onto the diamond clusters, such that the C2- (or active carbon) species contained in the plasma can attach to the diamond surface anisotropically, leading to diamond flakes. The incorporation of H2 in Ar plasma can also suppress the formation of i-carbons, an allotropic phase of diamonds. The critical proportion of H2 in Ar plasma for inducing the changes in the granular structure is around 0.03%. The proportion of grain boundaries was thus reduced and the electron field emission properties of the materials were thus degraded. However, the suppression of the film electrical conductivity without sacrificing the smooth surface characteristic has the applications as high-thermal-conductivity heat spreaders and substrates for surface-acoustic-wave devices.