In this paper we introduce novel tools for an improved failure analysis process flow for complex packaged microsystems. This failure analysis process flow starts with a non-destructive defect localization using an improved Lock-In Thermography (LIT). After fault isolation, a highly efficient target preparation can be performed using cross-sectioning by combined pulsed-laser ablation and high-current Focused-Ion-Beam (FIB) milling in a specifically modified FIB device. The sample quality achieved is high enough to enable improved high-resolution material analysis of cross-sectioned structures using Scanning Electron Micrography (SEM) and Electron Back-Scatter Diffraction (EBSD), particularly for the analysis of highly resistive bonding interconnects, intermetallic compound identification, and texture analysis. To illustrate the complete workflow of the approach, a failure analysis of a vertically integrated microsystem using a microinsert technology is described. The particular benefit of each step is compared to conventional approaches in failure analysis. In addition, the potential of the new failure analysis methodology for future applications using System in Package (SiP) technologies is highlighted.