The complex interplay between the electron and lattice degrees of freedom produces multiple nearly degenerate electronic states in correlated electron materials. The competition between these degenerate electronic states largely determines the functionalities of the system, but the invoked mechanism remains in debate. By imaging phase domains with electron microscopy and interrogating individual domains in situ via electron transport spectroscopy in double-layered Sr(3)(Ru(1-x)Mn(x))(2)O(7) (x = 0 and 0.2), we show in real-space that the microscopic phase competition and the Mott-type metal-insulator transition are extremely sensitive to applied mechanical stress. The revealed dynamic phase evolution with applied stress provides the first direct evidence for the important role of strain effect in both phase separation and Mott metal-insulator transition due to strong electron-lattice coupling in correlated systems.