Thermal processing of strained In0.2Ga0.8 As/GaAs graded-index separate confinement heterostructure single quantum well laser diodes grown by molecular beam epitaxy is investigated. It was found that rapid thermal annealing can improve the 77K photoluminescence efficiency and electron emission from the active layer, due to the removal of nonradiative centers from the InGaAs/GaAs interface. Because of the interdiffusion of Al and Ga atoms, rapid thermal annealing increases simultaneously the density of DX centers in the AlGaAs graded layer. The current stressing experiments of post-growth and annealed laser diodes are indicative of a corresponding increase in the concentration of DX centers, suggesting that DX centers may be responsible for the degradation of laser diode performance.