Abstract: Carbonaceous mesophase is an excellent precursor for the production of high-performance carbon materials which have been successfully applied in high-performance composites, ultra-high power graphite electrodes and anodes of rechargeable lithium ion batteries. The complicated structures and various forms of carbonaceous mesophase make the raw materials and production process involved more complicated. It is important to have a good understanding of the mesophase formation mechanism in order to predict the performance of mesophase based carbon materials prepared under different conditions and to determine further their applications. A review of the formation process and mechanism of carbonaceous mesophase is given based on explanations in previous papers and a new Building from Granular Basic Units (BGBU) theory is proposed. It is found that there are many unreasonable explanations in traditional theory that cannot clarify some experimental facts. Microdomain building theory made great progress in explaining the formation of carbonaceous mesophase, but the introduction of the non-existent stacking units of molecules is a defect of the theory. BGBU theory was brought forward based on the former theories and can explain the formation process of carbonaceous mesophase very well. In addition, some applications of BGBU theory are discussed.