The degradation of smooth SiGe epitaxial layer was investigated by transmission electron microscopy (TEM), X-ray reflectivity (XRR) and atomic force microscopy (AFM). It was shown from AFM results that the crosshatch was formed with increasing annealing temperature, which indicated the degradation of smooth surface. The surface degradation was caused by the internal dislocations, which were observed by plan-view TEM (PTEM) and cross-sectional TEM (XTEM). From XTEM, the sharp interface between SiGe top layer and Si substrate was broadened and there were a lot of 60° dislocations formed in SiGe top layer, which resulted in the crosshatch on the surface. The crosshatch was also verified by PTEM.