Atomistic simulations were performed to study formation and characteristics of misfit dislocations in heterostructures. The fc.c. Au/Ni (15.9% mismatch) system was used for analysis. When the strain energy of the system, computed using Lennard-Jones potentials [Physica status solidi (a) 30, 619 (1975)], (or potentials based on embedded atom method [Phys. Rev. B 41, 9717 (1990)]) was minimized, misfit dislocations were generated. The dislocation type depended upon the orientation of the substrate, being 90-degrees type for a (001) interface and 60-degrees type for a (111) interface. The latter orientation also resulted in greater relaxation of the strain energy. Multiple dislocations were generated at appropriate spacings in large computational cells relaxed using rigid boundaries. When infinitely large computational cells were simulated using periodic boundaries, the size of the periodic unit affected the dislocation spacing and the energy relaxation. Based on the structure of the intermediate defect configurations, it is hypothesized that the nucleation of misfit dislocations starts with formation of vacancies at the film surface. As the vacancies migrated towards the substrate, a dislocation loop moved to the interface.