Vertically aligned nanocomposite (VAN) oxide thin films have recently stimulated a significant amount of research interest owing to their novel architecture, vertical interfacial strain control and tunable material functionalities. In this work, the growth mechanisms of VAN thin films have been investigated by varying the composite material system, the ratio of the two constituent phases, and the thin film growth conditions including deposition temperature and oxygen pressure as well as growth rate. It has been shown that thermodynamic parameters, elastic and interfacial energies and the multiple phase ratio play dominant roles in the resulting microstructure. In addition, vertical interfacial strain has been observed in BiFeO3 (BFO)- and La0.7Sr0.3MnO3 (LSMO)-based VAN thin film systems; the vertical strain could be tuned by the growth parameters and selection of a suitable secondary phase. The tunability of physical properties such as dielectric loss in BFO:Sm2O3 VAN and low-field magnetoresistance in LSMO-based VAN systems has been demonstrated. The enhancement and tunability of those physical properties have been attributed to the unique VAN architecture and vertical strain control. These results suggest that VAN architecture with novel microstructure and unique vertical strain tuning could provide a general route for tailoring and manipulating the functionalities of oxide thin films.