We study the domain structure in ferroelectric thin films with a ‘passive’ layer (material with damaged ferroelectric properties) at the interface between the film and electrodes within a continuous medium approximation. An abrupt transition from a monodomain to a polydomain state has been found with the increase of the ‘passive’ layer thicknessd. The domain width changes very quickly at the transition (exponentially withd−2). Similar behavior is obtained for epitaxial ferroelectric (without top electrode) and ferroelastic films. We have estimated the dielectric responsedP/dE(the slope of the hysteresis loop) in the ‘fatigued’ multidomain state and found that it is in agreement with experiment, assuming realistic parameters of the layer. We derive a simple universal relation for the dielectric response, which scales as1/d,involving only the properties of the passive layer. This relation qualitatively reproduces the evolution of the hysteresis loop in fatigued samples and it could be tested with controlled experiments. It is expected that the coercive field should increase with decreasing lateral size of the film. We believe that specific properties of the domain structure under bias voltage in ferroelectrics with a passive layer can resolve the long-standing ‘paradox of the coercive field.’ ©2000 American Institute of Physics.