The morphological stability of strained-layer semiconductors is analyzed for the case where strain relaxation occurs by formation of isolated, coherent islands. In the model, partial strain relaxation in the underlying strained-layer is taken into account. Using a mean-field approximation, the interaction energy is taken to be linearly proportional to the strain energy in the film. The model predicts that the critical thickness for island formation depends inversely on the square of the misfit. The predicted dependence of critical thickness on the misfit is in quantitative agreement with recent experimental studies on island nucleation for heteroepitaxial III-V compounds.