Many researchers have reported strength reduction of concrete when recycled aggregate is introduced to the mix. However, the causes of such reduction and preventive measures are yet to be established. In this study, effect of recycled aggregate on concrete is investigated by microscopic examinations of micro-cracks present in the recycled aggregate (RG) and by measuring moisture absorption rate of RG. The results showed the followings: 1) the shape and extent of micro-cracks vary by type and size of RG, 2) recycled aggregate concrete (RAC) containing RG formed the failure surface along the micro-cracks inside RG, 3) moisture uptake, which may alter local water content in wet concrete, mostly took place via micro-cracks of RG reaching depth of about 3 mm within the first 1 hr, much faster rate than that of natural aggregate of the same type. Based on the results of this study, it is recommended that the size of RG be kept less than 10 mm for production of high quality RG with a small amount of micro-cracks.