The microstructure and internal stress of nanocrystalline Fe-13% Ni alloys electrodeposited onto a steel substrate were examined. A deposit growth was accompanied by the formation of microcracks and a reduction in stress level; during an increase in deposit thickness from 0.1 to 50 mu m, the internal stress decreased from 1450 to 90 MPa. An explanation of crack formation was proposed on the basis of Griffith’s theory of fracture. A critical deposit thickness prior to crack propagation, predicted from the mechanism proposed, was in good agreement with the values obtained from in-situ measurements of stress evolution and from direct microscopy observations. The results showed that the thickness of deposits exerted crucial influence on their fracture resistance.