Strained InGaAs layers grown on AlAs/GaAs have been shown to relax when the AlAs is laterally oxidized. A detailed microscopy study is reported of the InGaAs structure before and after oxidation. Plan-view transmission electron microscopy (TEM) reveals that the misfit dislocation density in the InGaAs/AlAs interface is reduced by 30 times after lateral oxidation. The mechanism proposed for this reduction is the oxidation of the InGaAs interface, including the core regions of the misfit dislocations. Threading dislocation densities in the InGaAs are not measurable by TEM either before or after oxidation for optimized In0.20Ga0.80As and In0.30Ga0.70As layers. Two possible strain relaxation mechanisms are examined: (i) the compressive strain in the InGaAs is relaxed by a tensile stress developing during oxidation in the cap layer; and (ii) the stress is relaxed by the threading dislocation motion in the cap layer during oxidation. The removal of misfit dislocations reduces the likelihood of threading dislocation blocking, which prevents threading dislocations from moving across misfit dislocations.