In this paper, we consider the effects of initial flaw size and plasticity in adjacent layers oil the formation of channeling cracks in thin films. Fully three-dimensional finite element analyses are used to determine energy release rates Lis a function of flaw size for both contained through cracks and edge cracks intersecting free surfaces, The result,,, indicate that substantially larger flaws are required to achieve steady state for edge flaws and when the substrate is more compliant than the film. For edge flaws, the crack length required to achieve steady state is significantly larger than the film, thickness, in contrast to conventional wisdom, which assumes steady state is reached when the crack length exceeds only several film thickness, The effect of residual stress in adjacent ductile layers is illustrated for a two-layer system bonded to an elastic substrate, Residual stress in the middle layer promotes plasticity adjacent to the crack and leads to much larger energy release rates than similar, scenarios with films on ductile substrates without residual stress. Comparisons are made between several methods for predicting energy release rates, with the goal of identifying the validity of 2-D steady state approximations. The results can he used to predict critical flaws sizes that lead to film failure and to identify potential susceptibility to inelastic cracking mechanisms.