Crystalline films of magnesium oxide (periclase and the “β”-phase) with or without magnesium hydroxide were deposited on soda lime glass and n-type silicon (100) substrates by sol–gel method with a view to controlling the formation of magnesium hydroxide and studying its role of hydroxide in the grain growth of MgO film. The gel films were crystallized by annealing at 500 °C (rapid thermal processing, RTP, or vacuum annealing) and 800 °C (air annealing). The phase assemblage was found to be dependent on the cleaning method of the substrate; when the cleaning method was essentially non-aqueous, no hydroxide crystallized in the annealed films. Aging of the annealed films under a humid atmosphere (65–75% relative humidity) led to the generation of Mg(OH)2 in freshly prepared (hydroxide-free) films and increase in its formation when it was already present. Hydroxide-free films showed significant growth in grain size compared to the other films, indicating a possible inhibiting role of the hydroxide in grain growth.