<p>Zn-based alloy coatings are widely applied in surface mechanical protection due to their superior properties. However, the deformation mechanisms at interlayer and interfacial regions under localized mechanical loading remain poorly understood due to technical limitations, hindering performance optimization. In this study, hot-dipped Zn-Fe alloy coatings, an essential Zn-based alloy coating system, were investigated using a novel <i>in-situ</i> indentation technique combined with scanning electron microscopy to directly characterize subsurface deformation during indentation. The results showed that the zinc layer (η) and the mixed layer of zinc and zinc-iron compound FeZn₁₃ (ζ₁), with lower iron content, underwent plastic deformation without cracking. In contrast, the layer of zinc-iron compound FeZn₁₃ (ζ₂) and the layer of zinc-iron compound FeZn₁₀ (δ), with higher iron content, exhibited significant crack formation and fracture. The intergranular cracks in the δ layer propagated to the interface, causing discontinuous fractures at the interface. These discontinuities and cracks mutually accelerated, resulting in rapid and catastrophic coating failure.</p>