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Due to the absence of matching carbon atoms at honeycomb centers with carbon atoms in adjacent graphene sheets, theorists predicted that a sliding process is needed to form AA, AB, or ABC stacking when directly converting graphite into sp3 bonded diamond. Here, using twisted bilayer graphene, which naturally provides AA and AB stacking configurations, we report the ultrafast formation of a transient 2D diamond-like structure (which is not observed in aligned graphene) under femtosecond laser irradiation. This photo-induced phase transition is evidenced by the appearance of new bond lengths of 1.94A and 3.14A in the time-dependent differential pair distribution function using MeV ultrafast electron diffraction. Molecular dynamics and first principles calculation indicate that sp3 bonds nucleate at AA and AB stacked areas in moire pattern. This work sheds light on the direct graphite-to-diamond transformation mechanism, which has not been fully understood for more than 60 years.