Carbothermal formation of low-z beta'-sialon (z = 0.5) from halloysite clay has been carried out using two different forms of the necessary additional silicon, namely, finely divided SiO2 (quartz) and elemental Si. XRD and solid-state Si-29 and Al-27 MAS NMR studies of the early stages of the reaction at 1000-1400 degrees C show that the SiO2 forms both Si3N4, via a series of oxynitrides, and SiC. These then react with the mullite produced by thermal decomposition of the clay, to form beta'-sialon. The addition of 3 mass% Y2O3 to the reaction mix does not change the reaction sequence, but facilitates the formation of both mullite and beta'-sialon, in which it also promotes the formation of Al-N units. Using elemental Si, some SiC is formed, which reacts with the mullite and remaining Si to form O'-sialon, which may then react further with mullite to produce beta'-sialon. The addition of Y2O3 forms transient Y2Si2O7 at lower temperatures, but in the later stages facilitates the formation of beta'-sialon with respect to O'-sialon.