The controlled etching of graphite and graphene by catalytic hydrogenation is potentially a key engineering route for the fabrication of graphene nanoribbons with atomic precision. The hydrogenation mechanism, though, remains poorly understood. In this study we exploit the benefits of aberration-corrected high-resolution transmission electron microscopy to gain insight to the hydrogenation reaction. The etch tracks are found to be commensurate with the graphite lattice. Catalyst particles at the head of an etch channel are shown to be faceted and the angles between facets are multiples of 30°. Thus, the angles between facets are also commensurate with the graphite lattice. In addition, the results of a post-annealing step suggest that all catalyst particles—even if they are not involved in etching—are actively forming methane during the hydrogenation reaction. Furthermore, the data point against carbon dissolution being a key mechanism during the hydrogenation process.