Rheological behavior of aqueous suspensions containing nanometer-sized powders is of relevance to many branches of industry. Unusually high viscosities observed for suspensions of nanoparticles compared to those of micron size powders cannot be explained by current viscosity models. Formation of so-called hydration layer on alumina nanoparticles in water was hypothesized, but never observed experimentally. We report here on the direct visualization of aqueous suspensions of alumina with the fluid cell in situ. We observe the hydration layer formed over the particle aggregates and show that such hydrated aggregates constitute new particle assemblies and affect the flow behavior of the suspensions. We discuss how these hydrated nanoclusters alter the effective solid content and the viscosity of nanostructured suspensions. Our findings elucidate the source of high viscosity observed for nanoparticle suspensions and are of direct relevance to many industrial sectors including materials, food, cosmetics, pharmaceutical among others employing colloidal slurries with nanometer-scale particles.