Thin (78 +/- 4 nm), well-bonded zirconia films were formed on 316L stainless steel substrates by dip-coating in an alkoxide precursor solution followed by annealing in air to achieve film densification. X-ray diffraction showed the film to be either metastable cubic or tetragonal zirconia. A substrate-straining test was used to investigate the mechanical characteristics of the film and interface; this protocol has been used previously to estimate interfacial shear strength through a shear-lag model. At strain levels of about 1.5%, 15 times the yield strain of the substrate, through-thickness cracking of the film was observed. These cracks were driven by deformation localized at slip bands on the substrate surface and the cracking pattern reflected the slip band pattern of the underlying substrate; the propagation of long cracks transversely to the applied stress, as observed in similar experiments previously, was not seen and consequently the shear-lag model was not applicable. As a qualitative indication of good adhesion, film debonding was not observed even at high strain levels. A non-quantitative model was proposed which examined stress transfer across the film-substrate interface on a microscopic scale, and suggested how film, substrate and interface properties affect competition between transverse and slip-band-induced modes of film cracking. This model was then used to reconcile the observations of this study with the transverse cracking observed by others.