The development of novel ultra-wide bandgap (UWBG) materials requires precise understanding of the atomic level structural origins that give rise to their important properties. We study the aluminum atom incorporation, defect formation, and their relationships with phase stability in β-(AlxGa1−x)2O3 films, a promising candidate for UWBG applications, to explain atomic scale structural characteristics and properties using a combination of quantitative scanning transmission electron microscopy (STEM) and density functional theory (DFT). Our STEM analysis indicates that ∼54% of the incorporated Al substitutes on the octahedrally coordinated Ga2 site in a series of films grown with different techniques and alloy concentrations. DFT calculations show that, while Al energetically prefers the octahedral site, surface reconstructions and kinetic limitations during the epitaxial growth are responsible for Al occupying both octahedral and tetrahedral sites in (AlxGa1−x)2O3, ultimately limiting the stability of the β-phase at x < ∼50%. Local heterogeneity of composition results in the formation of a planar defect, affecting the stability of the β-phase. The similarity of such inclusions to the metastable γ-phase is discussed.