The effect of varying compositional gradient on the propagation of misfit dislocations in the step‐graded molecular‐beam epitaxy growth of InGaAs is studied by cross‐sectional transmission electron microscopy. For a composition change of 15% across the interface, the misfit dislocations are almost all confined to the interface and few defects are observed in the InGaAs layer grown. The confinement of misfit dislocations at the interfaces becomes less effective for the 5% cases; a new phenomenon of stress relieving is observed where a high‐density center of inclined dislocations is formed which leaves a large neighboring area with very low density of defects.