Manipulation of inorganic materials with organic macromolecules enables organisms to create biominerals such as bones and seashells, where occlusion of biomacromolecules within individual crystals generates superior mechanical properties. Current understanding of this process largely comes from studying the entrapment of micron-size particles in cooling melts. Here, by investigating micelle incorporation in calcite with atomic force microscopy and micromechanical simulations, we show that different mechanisms govern nanoscale occlusion. By simultaneously visualizing the micelles and propagating step edges, we demonstrate that the micelles experience significant compression during occlusion, which is accompanied by cavity formation. This generates local lattice strain, leading to enhanced mechanical properties. These results give new insight into the formation of occlusions in natural and synthetic crystals, and will facilitate the synthesis of multifunctional nanocomposite crystals.