A diamondlike carbon (DLC) thin film was deposited onto a stainless steel substrate using a plasma-enhanced chemical vapor deposition (PECVD) process. Nanoindentation, coupled with focused-ion-beam (FIB) milling, was used to investigate contact-induced deformation and fracture in this coating system. Following initial elastic contact between the coating and the indenter and apparent plastic yield of the substrate, pop-ins were observed in the load–displacement curve, indicative of coating fracture. However, FIB cross-sectional images of indentations revealed the presence of ring, radial, and lateral cracks at loads much lower than the critical load for the first observed pop-ins. Finite element modeling was used, and the properties of the substrate and the film were calibrated by fitting the simulated load–displacement curves to experimental data. Then, based upon the experimental observations of damage evolution in this coating system, the stress distributions relevant to initiate ring, radial, and lateral cracks in the coating were ascertained. Furthermore, the effects of substrate yield stress and coating residual stress on the formation of these cracks were investigated.