The recent invention of paper-based blood typing devices which are inexpensive, but also accurate and easily interpreted, has shown great promise for the future. Despite the efficacy of these devices, the underlying mechanisms responsible for how they function have remained largely unknown. This work illuminates these mechanisms by using the technique of confocal microscopy to delve into the behaviour of red blood cells at the micro-scale and view exactly what is happening as blood samples interact with antibody treated paper substrates. The underlying mechanisms responsible for the phase separation of red blood cells and plasma from whole blood on paper are elucidated for the first time, opening the door to future enhancements to such devices. It was revealed that the dominant mechanism responsible for the separation of whole blood into its respective phases was the physical entrapment of large red blood cell aggregates following their agglutination. Understanding these mechanisms and the effects of the paper structure makes optimization of paper-based blood diagnostics possible. Further investigations of optimal pore sizes, tortuosity or fibre size may lead to significant improvements in the sensitivity and accuracy of this important diagnostic platform.