A micelle-vesicle transition induced by n-octanol C8OH was observed in an aqueous cetyltrimethylammonium bromide (CTAB)/potassium bromide (KBr) system. This transition was investigated by viscosity, rheology, dynamic light scattering (DLS), and direct imaging technique, cryo-transmission electron microscopy (cryo-TEM). Viscometry shows that the system underwent several morphological transitions with the increase in concentration of C8OH (regions I-IV). At low octanol concentration (region I), DLS analysis showed an increase in the apparent hydrodynamic diameter of the micelles with the addition of C8OH which was supported by cryo-TEM and rheology. With further addition of C8OH, transition of the elongated micelles occurred to a viscoelastic fluid comprising entangled wormlike micelles (region II), for which rheological data can be described by the Maxwell model. Further, the wormlike micelles transform to vesicles at [C8OH] approximate to 0.020 M (region III). This transition and the consequent changes in the fluid response can be explained in terms of vesicle formation caused by further addition of C8OH. Beyond this concentration (region IV), vesicles are the predominant microstructures in the system which shows unusual temperature response.