First of all, Rei doesn't actually watch the process of Grandpa's transformation into Jiji (the youma). Only Zoisite and Tuxedo Mask witness it. The first person after that who Jiji runs into is Yuuichirou, who then runs to tell Rei (which is a great scene for anyone who needs a poke to rewatch btw :p). So, at first Rei stays in her civilian form because she's with Yuuichirou and probably doesn't want him to find out that she's a Senshi.

Yuuichirou then tries to confront Jiji and gets knocked unconscious. Interestingly, instead of immediately transforming, she's got enough wits about her to make use of the fact that they ended up in the fire reading room. She says a quick incantation and the fire reveals that the youma is in fact her Grandpa. She starts trying to talk to him, hoping that he can "hear" her despite being in the youma form. Of course, it doesn't work and he chases her out of the temple, eventually pinning her to the base of a statue. Despite this, she continues to try to talk to him. So, from the point that Yuuichirou faints to now, Rei doesn't transform because she's trying to get her Grandpa to recognize her/'wake up'.

Jiji attempts to strike her and she ducks. Usagi then appears on the scene, throws a rock at the youma, and transforms into Sailor Moon. Rei thanks Sailor Moon for saving her and before the superhero can use her tiara, Rei tells her that the youma is her Grandpa. I think at this point maybe she could have transformed. Perhaps she's still hoping that he will recognize her or she could be still a bit shocked as Cosmos-Hime suggested, or a combination of both.

A comedic chase scene ensues as they don't know what to do. Luna tells Rei to use her ofuda to stop his movements. She can use her Akuryo Taisan attack/chant without transforming, so she has no need to at this point.

The attack works to stun Jiji and Sailor Moon immediately takes the opportunity to get her act together pull out her Moon Stick for a "Moon Healing Escalation". Grandpa turns back to normal and thus the battle ends.