Pulsed laser deposition of TiO2 and BaF2 layers at room temperature and subsequent annealing in flowing oxygen were used to form homogeneous epitaxial BaTiO3 films on LaAlO3. This oxide film synthesis method, known as the precursor technique, is frequently used for making combinatorial libraries. In this paper, we investigated the microstructures of the films at different stages of annealing using cross-sectional transmission electron microscopy, high-resolution imaging, and electron energy loss spectroscopy. It was shown that epitaxial BaTiO3 thin films with large grains could be formed on a LaAlO3 substrate. Their formation process consists of the following stages: At 200 °C, the BaF2 layer is partially oxidized. At 400 °C, the amorphous TiO2 layer crystallizes, further transformation of BaF2 into BaO takes place, and interdiffusion begins. At 700 °C, the formation of a polycrystalline structure with different Ba–Ti oxides occurs, epitaxial BaTiO3 grains nucleate on the film/substrate interface, and significant interdiffusion takes place. Finally, at 900 °C, the interdiffusion is completed, and the epitaxial BaTiO3 grains coalesce and grow. The presence of nonepitaxial polycrystalline regions in fully annealed films can be explained as the following: (i) stoichiometric transient regions not yet consumed by recrystallization of BaTiO3; (ii) nonstoichiometric regions resulting from inhomogeneous deposition of BaF2.