The microstructure of a carbon fiber-reinforced ZrC matrix composite, Cf/ZrC, manufactured by reactive melt infiltration (RMI) was characterized by optical microscopy, X-ray diffraction, scanning electron microscopy, electron backscattering diffraction (EBSD), and transmission electron microscopy. Characterization results revealed a heterogeneous microstructure typical of composites processed by RMI. The major features that were observed include ZrC single crystals in the matrix, Zr–ZrC eutectic phase, and the fiber/matrix interface. The hardness and modulus of ZrC single crystals and the eutectic phase were determined through micro- and nanoindentation. EBSD studies proved that ZrC matrix grains distribute randomly. Fiber bundle areas were examined and revealed poor intrabundle infiltration. Closer inspection of the ZrC crystals revealed the presence of never-before reported inclusions. Analysis of the inclusions revealed their phase composition and a microstructural formation mechanism outlines their development during processing. The phase composition was proved to be nanosized α-Zr with round or needle-like shape. There are two plausible mechanisms for the formation of the inclusion. One is the trapping mechanism that some liquid zirconium from grain boundaries of ZrC grains may become trapped inside ZrC particles during their coalescence growth. The other is precipitation mechanism that α-Zr may precipitate inside some ZrC grains during formation of Zr–ZrC eutectic phase or ZrC grains with deficient carbon under cooling.