Mechanical properties of nanoscale multilayer coatings are to a large extent governed by the number of interfaces and their characteristics. While for a reduced layer thickness, increasing strength and toughness values have been reported, properties degrade for layer thicknesses of just several nanometers. Here, we report on an entirely overlooked phenomenon occurring during the indentation of nanolayers, presumably explaining the degradation of properties. Nanoindentation, commonly used to determine properties of hard coatings, is found to disrupt and intermix the multilayer structure due to the deformation imposed. Detailed electron microscopy studies and atomistic simulations provide evidence for intermixing in an epitaxial transition metal nitride superlattice thin film induced by nanoindentation. The formation of a solid solution reduces the interfacial density and leads to a sharp drop in the dislocation density. Our results confirm that plastic deformation causes the microstructure instability of nitride multilayer, which may further improve our understanding of multilayer strength mechanisms.