Vertically aligned carbon nanotubes (CNTs) with controllable length and diameter fabricated by microwave plasma enhanced chemical vapor deposition (MPECVD) are of continuing interest for various applications. This paper describes the role of process gas composition as well as the pre-coating catalytic layer characteristics. It is observed that nucleation of CNTs was significantly enhanced by adding nitrogen in the MPECVD process, which also promoted formation of bamboo-like structures. The very first key step toward growth of aligned CNTs was the formation of high-density fine carbon onion encapsulated metal (COEM) particles under a hydrogen plasma. Direct microscopic investigation of their structural evolution during the very early stages revealed that elongation, necking, and splitting of the COEM particles occurred accompanying the growth of CNTs, such that one of the split portions rode on the top of the growing tube while the remaining one resided on the root. Our results suggest that CNTs grow via the "tip-growth" as well as "root-growth" mechanisms.