Eutectic composition Cu–Ag alloy thin films were prepared by co-deposition at room temperature onto oxidized Si substrates by thermal evaporation. Morphological development, structure and phase state of the films were investigated by transmission electron microscopy. The films possess fibre morphology 10–30nm in diameter and strong <111> texture is present. The fibres are nanocrystalline composed of 2–3nm size zones of Cu and Ag rich solid solution phases and a model for morphological development and phase separation is described. In the early stages of growth phase separation occurs by nucleation in melted islands and a eutectic of randomly oriented crystallites forms. In later stages of growth the phase separation takes place by spinodal decomposition. It results in a strain stabilized unique morphology corresponding to an intermediate stage of phase separation.