The effect of growth conditions and thickness of AlN interlayers on the strain state of MOVPE-grown AlxGa1-xN epilayers on GaN/sapphire templates has been investigated. It was found that in almost all cases, the AlN interlayers apply a compressive strain to the AlGaN layer and prevent the formation of cracks. From use of both atomic force microscopy and cross-sectional electron microscopy, it appears that micro-cracking of the AlN interlayer itself occurs, thereby causing compression of the subsequent AlGaN layer. These cracks appear not to propagate beyond the AlN and are covered during AlGaN deposition. The growth conditions of the interlayer affect the crack network and surface morphology, which in turn determine the strain state of the AlGaN: the compressive strain was found to increase with interlayer thickness, decreasing V/III ratio and decreasing interlayer deposition temperature. The growth of crack-free AlN/GaN multilayers with individual layer thicknesses exceeding 60 nm has also been achieved. (C) 2004 Elsevier B.V. All rights reserved.