The microstructure and chemistry of TiN coatings on AISI 304 stainless steel was analyzed by an energy filtering transmission electron microscope (TEM) equipped with an electron energy loss spectroscopy (EELS) detector. Two types of TiN-coated specimens, with and without a Ti interlayer. were prepared by a hollow cathode discharge ion plating coater. For the TiN directly coated on steel, it is found that the grain size, texture, and chemistry of the coating is thickness dependent. The large residual stresses in TiN caused the formation of dislocation networks and cell walls in the steel, and often resulted in early failure of the coating upon subsequent handling. Compared to the TiN-steel system, the introduction of a Ti interlayer between TiN and steel gives rise to the different results. The microstructure of TiN coatings with a Ti interlayer is mainly composed of columnar grains whose size is found to be relatively independent of coating thickness. Near the TiN-Ti interface, it is observed that many of the TiN grains grew out of the underlying Ti crystallites. Consequently, a very good epitaxial relation is established between TiN and Ti. The texture of the TIN coatings with a Ti interlayer, therefore, showed enhanced preferred orientation when approaching the TiN-Ti interface. From the calculation of the unrelaxed thermal stress based on a bilayer model, it is demonstrated that the presence of a Ti interlayer between TiN and steel can dramatically reduced the thermal stress in the TiN coating.