The deformation and failure mechanism of a multilayered thin film consisting of alternating soft Cu and hard TiN interlayers has been studied by in situ SEM compression of micro-pillars and finite element simulations. While the yielding of the multilayer is governed by the 'size-dependent' strength of Cu, the failure was found to occur by shearing of the columnar grains of TiN. At elevated temperatures of 200 and 400 C, the yielding of the multilayers is governed by the stress-assisted diffusion of the Cu interlayers, which coalesce into microcrystals and grow into larger faceted crystals.