The microstructural evolution of a-Si1-xCx:H with an optical gap of 1.95 eV, prepared by plasma-enhanced chemical vapor deposition (PECVD), has been studied versus gas phase H2- dilution by real time spectroscopic ellipsometry. As the H2/(CH4+SiH4) flow ratio is increased to 24, the monolayer-scale features of the growth process suggest an enhancement in precursor diffusion on substrate and film surfaces. Such features include a reduction in nucleation density, extensive surface smoothening during coalescence, and an increase the structural stability and density of the final film. We suggest a causal connection between these characteristics, and the photoelectronic properties of the film, which also improve with H2-dilution. Potentially detrimental effects of H2 dilution when a-Si1-xCx:H is deposited on TCO’s, including metal contamination at interfaces with Sn02 and H-diffusion into ZnO, are also characterized.