Incorporation of Fe in YBa2Cu3O7−&dgr;matrix during its epitaxial growth on (001) LaAlO3by pulsed excimer laser ablation is examined. It is shown that oxygen pressure during deposition plays a critical role in the incorporation process and that a low‐temperature postsynthesis annealing is essential for complete substitution. Clustering of iron atoms and its control via the anion controlled reactions are identified as the key features in this context. It is also shown by using atomic force microscopy that Fe incorporation influences the surface morphology. These issues are of importance in the formation of cationic defects in multicomponent thin films. ©1995 American Institute of Physics.