The annealing of nickel-coated porous carbon structures results in a new three dimensional nanostructured graphene encapsulated nickel core–shell electrode. A highly interdependent and dynamic process is observed that results in the complete reversal of the spatial orientations of the two component system after the annealing process. We examine the mechanism of carbon diffusion and observe unexpected morphological changes of the nickel in response to carbon crystallization. The new nickel–graphene core–shell electrode demonstrates excellent electrochemical properties with promising applications in micro-batteries and biosensors.