In this study, the interfacial cracking mechanism of Cr-coated Zircaloy cladding tubes was investigated through a combination of tensile testing, advanced microstructural characterization, and first-principle calculations. The results demonstrate the presence of an interlayer (33 nm) between the Cr coating and the Zr substrate, which consists of Cr and O elements. In comparison with the coherent Cr/interlayer interface, the incoherent interlayer/Zr interface is conducive to crack initiation and propagation, resulting from local high strain concentration generated by incompatible deformation between the interlayer and Zr substrate, and O-induced reductions in Cr/Zr interfacial cohesive strength.