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A systematic study of the mechanical deformation and failure of transparent ceramic aluminum oxynitride (AlON) has been conducted using a depth-sensitive nanoindentation technique combined with transmission electron microscopy (TEM) and Raman spectroscopy. Although discrete displacement bursts appear in the load–depth profiles at high applied forces, a detectable high-pressure phase transition has not been found by means of micro-Raman spectroscopy and TEM. Instead, a high density of dissociated (1 1 0) dislocations can be observed underneath the nanoindenters, suggesting that extensive plastic deformation takes place in the brittle ceramic at high contact pressures. Moreover, nanoindentation-induced micro-cracks oriented along well-defined crystallographic planes can also be observed, consistent with the low fracture toughness of AlON evaluated by an indentation method using Laugier’s equation.