Graded (Ti1-xAlx)N coatings were prepared by reactive magnetron co-sputtering of Ti and Al on silicon and glass substrates in an Ar + N-2 atmosphere. The N-2 content was kept constant in the gas mixture and the composition of the (Ti1-xAlx)N film was controlled by the power applied to the targets. The composition of the graded films was determined by Auger electron spectroscopy (AES) depth profiling and by energy dispersive spectroscopy (EDS) of their cross sections. Phase determination was performed by X-ray diffraction (XRD) and by selected area electron diffraction (SAED). Transmission electron microscopy (TEM) of the cross sections was used to determine the microstructure of the graded films. Interfaces between the films and substrates and within the films were investigated by high resolution TEM (HRTEM). The microstructural observations as well as the composition analysis, performed by AES depth profile and by EDS measurements, show that the graded films are continuous. XRD patterns have shown a strong preferred orientation with the (1 1 1) planes parallel to the surface of the film. Splitting of the (1 1 1) peak or its broadening reflect reduction in the lattice parameter with increasing Al content. TEM images show that the films posses columnar structure with an average grain size of similar to 50 nm. HRTEM images reveal randomly oriented grains near the Si substrate and semi-coherent grain boundary between neighboring columnar grains.