Prevention of mechanical and finally electrochemical failures of lithium batteries is a critical aspect to be considered during their design and performance, especially for those with high specific capacities. Internal failure is observed as one of the most serious factors, including loss of electrode materials, structure deformation and dendrite growth. It usually incubates from atomic/molecular level and progressively aggravates along with lithiation. Understanding the internal failure is of great importance for developing solutions of failure prevention and advanced anode materials. In this research, different internal failure processes of anode materials for lithium batteries are discussed. The progress on observation technologies of the anode failure is further summarized in order to understand their mechanisms of internal failure. On top of them, this review aims to summarize innovative methods to investigate the anode failure mechanisms and to gain new insights to develop advanced and stable anodes for lithium batteries.