The relaxation of tensile stresses in AlGaN layers grown on GaN(0001) sapphire by facet-controlled epitaxial lateral overgrowth is reported. It is shown that a -type misfit dislocations are introduced at inclined {11 2- 2} AlGaNGaN interfaces, with strong evidence for a half-loop nucleation and glide mechanism driven by shear stresses present on the (0001) slip plane. In addition to relieving misfit stresses, these dislocations introduce grain rotations of up to 10-2 rad across the AlGaNGaN boundaries, leading to tilt boundaries at the meeting front between laterally growing wings and between regions growing in the lateral and [0001] directions. The effects of these processes on the defect density in subsequent layers are examined. © 2004 American Institute of Physics.