The role of C incorporation in the microstructure and thermal stability of arc-evaporated Cr-C-N coatings is explored via reactive growth in a mixed C2H4-N-2 environment. C is found to react more readily than N at both the Cr cathode and the coating surfaces, so that a C2H4-to-N-2 flow ratio of only 1% yields a C-to-N ratio of approximately 10% within the coatings. The as-deposited microstructures consist primarily of the delta-Cr(C, N) phase and possess high compressive residual stresses, which decrease with increasing C content. Post-deposition annealing up to 700degreesC results in depletion of lattice defects, and concomitant reductions in stress and coating hardness, together with phase transformations which suggest metastable phase formation during growth. Apparent activation energies for this lattice defect are found to be in the range expected for bulk diffusion of N and C (2.4-2.8 eV). The results suggest that inclusion of small amounts of C in this system offers the ability to reduce internal stresses while maintaining defect-related hardness increases, permitting growth of thicker and thus more wear-resistant coatings.