The microstructural origin of the exceptionally high piezoelectric response of polycrystalline 0.5Ba(Zr0.2Ti0.8)O3-0.5(Ba0.7Ca0.3)TiO3 is investigated using in situ transmission electron microscopy, in addition to a wide variety of bulk measurements and first-principles calculations. A direct correlation is established relating a domain wall-free state to the ultrahigh piezoelectric d33 coefficient in this BaTiO3-based composition. The results suggest that the unique single-domain state formed during electrical poling is a result of a structural transition from coexistent rhombohedral and tetragonal phases to an orthorhombic phase that has an anomalously low elastic modulus. First-principles calculations indicate that incorporating Ca2+ and Zr4+ into BaTiO3 reduces the differences in structure and energy of the variant perovskite phases, and 0.5Ba(Zr0.2Ti0.8)O3-0.5(Ba0.7Ca0.3)TiO3 is identified as unique because the variant phases become almost indistinguishable. The structural instability and elastic softening observed here are responsible for the excellent piezoelectric properties of this lead-free ceramic. 2014 American Physical Society.