The object of this investigation was to evaluate the influence of (1) processing-induced decrease in drug crystallinity and (2) phase transformations during dissolution, on the performance of theophylline tablet formulations. Anhydrous theophylline underwent multiple transformations (anhydrate --> hydrate --> anhydrate) during processing. Although the crystallinity of the anhydrate obtained finally was lower than that of the unprocessed drug, it dissolved at a slower rate. This decrease in dissolution rate was attributed to the accelerated anhydrate to hydrate transformation during the dissolution run. Water vapor sorption studies proved to be a good predictor of powder dissolution behavior. While a decrease in crystallinity was brought about either by milling or by granulation, the effect on tablet dissolution was pronounced only in the latter. Tablet formulations prepared from the granules exhibited higher hardness, longer disintegration time, and slower dissolution than those containing the milled drug. The granules underwent plastic deformation during compression resulting in harder tablets, with delayed disintegration. The high hardness coupled with rapid anhydrate --> hydrate transformation during dissolution resulted in the formation of a hydrate layer on the tablet surface, which further delayed tablet disintegration and, consequently, dissolution. Phase transformations during processing and, more importantly, during dissolution influenced the observed dissolution rates. Product performance was a complex function of the physical state of the active and the processing conditions.