The alloy of Al-3at.%Ge has been found to have a low thermal expansion and contraction in the temperature range of room temperature to 400 °C. The reason for the low thermal contraction (or expansion) is the precipitation (or dissolution) of Ge in the alloy. The Ge precipitates have a diamond structure in which each Ge atom occupies a much larger atomic volume than a Ge atom dissolved substitutionally in Al. The volume difference compensates for the effect of thermal expansion and contraction with changing temperature which in turn reduces the thermal stress due to thermal mismatch. The technique of wafer bending was used to determine the stress of the alloy film on oxidized silicon wafers upon thermal cycling; indeed, it is much lower than that of pure Al on identical wafers. The morphology of precipitation and dissolution of Ge in Al has been studied by transmission and scanning electron microscopy. It is found that the precipitation follows a discontinuous mode and occurs predominantly along grain boundaries. In dissolving the Ge precipitates into Al, voids are left behind because of the volume difference. It is proposed that this may explain the enhancement of nucleation of voids in the alloy film upon thermal cycling.