Polymerization-induced phase separation to form polymer-dispersed liquid crystals (PDLCs) is a complex process involving simultaneous curing and phase separation to form nematic microdomains. Real-time FTIR spectroscopy has been used to simultaneously observe and quantify the curing process using a model system-a fast photocurable matrix (NOA65) and a liquid crystal (E7). While the role of FTIR spectroscopy in monitoring chemical changes is well recognized and reinforced for PDLCs, it is demonstrated in this paper that it is also a powerful tool to monitor physical changes (phase separation and nematic ordering). Phase separation was detected during the curing process by a scattering-induced change in the absorbance spectrum of the sample. Nematic ordering could be observed and quantified based on a change in a characteristic band of the liquid crystal. Moreover, the phase separation and the onset of nematic ordering are temporally resolved. The conversion at phase separation decreases strongly with an increase in liquid-crystal content, while the conversion required for phase separation increases with increasing temperature. Isotropic droplets are formed followed by nematic ordering in the domains at lower E7 concentrations, while the processes are simultaneous for higher concentrations. Temperatures close to and above the LC transition temperature also lead to isotropic domains, which form nematic domains upon cooling. The fraction of liquid crystal present as nematic droplets and total fraction of nematic domains in the PDLC are quantified based on changes in the vibrational spectrum of E7. On the basis of mass balances applied to the closed process, the phase diagram of the system could be determined as a function of curing temperature. Solubility limits obtained by this method agree well with results obtained by other researchers. The concept of a spectroscopic composite plot that completely describes the formation process in a PDLC is proposed.