We investigate island formation during heteroepitaxial growth using an atomistic model that incorporates deposition, activated diffusion, and stress relaxation. For high misfit the system naturally evolves into a state characterized by a narrow island size distribution. The simulations indicate the existence of a strain assisted kinetic mechanism responsible for the self-assembling process, involving enhanced detachment of atoms from the edge of large islands and biased adatom diffusion. ©1997 American Institute of Physics.