We present a non-linear continuum model of the growth of localized defects in multilayer coatings nucleated by particles on the substrate. The model is valid when the deposition and etch fluxes are near normal incidence so that shadowing effects are negligible. Three-dimensional simulations of defects in Mo/Si multilayer films nucleated by arrays of lithographically patterned particles are shown to be in good agreement with experimental measurements. Our results confirm that incorporating ion beam etching in the multilayer deposition process significantly suppresses the defect growth. This has a potentially important application in the fabrication of defect-free masks for extreme ultraviolet lithography. (C) 2003 Elsevier B.V. All rights reserved.