The three-dimensional interaction of crazes and micro-shearbands in co-extruded microlayer sheets with 49 alternating layers of polycarbonate (PC) and styrene-acrylonitrile copolymer (SAN) was investigated as a function of the relative layer thickness. The deformation processes were observed when microspecimens were deformed under an optical microscope. Deformed specimens were sectioned and examined further in the transmission electron microscope. Two types of craze were observed in the SAN layers : surface crazes initiated at a strain of about 1.8% and gradually lengthened to a maximum of 70 mu m when they were arrested-by micro-shearbands at 4.2% strain, while tunnel crazes appeared above 4.2% strain and rapidly grew through the entire SAN layer. Surface crazes did not prevent yielding and stable neck propagation, while tunnel crazes were responsible for fracture prior to neck formation. The density of surface crazes relative to tunnel crazes increased as the PC-SAN ratio increased or as the strain rate decreased. The surface crazes stimulated micro-shearbanding in both PC and SAN layers. After micro-shearbands initiated in the PC layers where the craze impinged on the PC-SAN interface, they propagated rapidly along the edges of the craze. As they overtook the craze tip, the micro-shearbands penetrated through the PC-SAN interface and continued around the craze tip to entirely engulf the craze. This terminated craze growth, and further strain in the SAN layer was accommodated by shear deformation.