Inter-relationship between lactose crystallization (LC), the amount and composition of surface free fat (SFF); and their effect on physico-chemical properties of infant formula (IF) containing hydrolyzed and intact (non-hydrolyzed) whey protein in their composition were investigated at two temperatures (25 and 45 °C) and five RH (11–65%) conditions. Results varied with compositional variation of IF. LC increased exponentially with SFF in non-hydrolyzed IF powders. IF composition influenced LC and caused selective migration of triglycerides, resulting in higher proportion of unsaturated fats in SFF of powders with large lactose crystals and vice-versa. Increase in SFF with increased proportion of saturated fats in their composition, resulted in reduced wettability of powders. Overall, IF composition affects LC which influences the amount and type of fat migration to particle surface resulting in varying wettability of IF powders.