The evolution of on-site number fluctuations of ultracold atoms in optical lattices is experimentally investigated by monitoring the suppression of spin-changing collisions across the superfluid-Mott insulator transition. For low atom numbers, corresponding to an average filling factor close to unity, large on-site number fluctuations are necessary for spin-changing collisions to occur. The continuous suppression of spin-changing collisions is thus direct evidence for the emergence of number-squeezed states. In the Mott insulator regime, we find that spin-changing collisions are suppressed until a threshold atom number, consistent with the number where a Mott plateau with doubly occupied sites is expected to form.