Material transformations occurring at the facets of optically ‘‘stressed’’ planar InGaAsP/InP diode lasers have been investigated by transmission electron microscopy and energy dispersive x‐ray spectroscopy. Catastrophic degradation lines (CDLs) which are characteristic of catastrophic optical damage are observed for optical power densities ∼107W/cm2. Analysis of the microstructure reveals a series of 150 nm wide GaAs‐rich tracks and the formation of unique void/InGa‐rich precipitate pairs within the InGaAsP active layer. These observations suggest that the formation of local group III‐rich regions is the first stage in the formation of CDLs. Subsequently, the strong absorption of the impinging laser beam leads to propagation of an InGa‐rich melt, thereby producing the GaAs‐rich tracks through a process similar to liquid phase epitaxy. These results are discussed in the context of standard physical models for CDLs. ©1995 American Institute of Physics.