In this paper we describe a completely new technique that is named as vertical microchannel epitaxy (V-MCE). By using V-MCE, reduction in both dislocation density and residual stress generated in highly mismatched heteroepitaxy, such as GaAs on Si, can be accomplished in molecular beam epitaxy. A narrow window opened in an SiO2 is used to grow GaAs selectively to get a vertical structure by V-MCE. Using the optimized growth condition, we have successfully grown V-MCE GaAs layers on Si (0 0 1) substrates with a high aspect ratio of about 2.0. A high aspect ratio is beneficial for the reduction of both dislocations and residual stress. From the observation of etch pit density it is found that a large number of dislocations went out from the side surfaces of the layer. Photoluminescence study indicates that V-MCE is also useful to release the residual stress in the heteroepitaxial layer. (C) 2002 Elsevier Science B.V. All rights reserved.