A new mechanism is proposed for the generation of self-assembled nanodots at the surface of a film based on spontaneous outcropping of the secondary phase of a nanocomposite epitaxial film. Epitaxial self-assembled Sr-La oxide insulating nanodots are formed through this mechanism at the surface of an epitaxial metallic ferromagnetic La0.7Sr0.3MnO3 (LSMO) film grown on SrTiO3 from chemical solutions. TEM analysis reveals that, underneath the La-Sr oxide (LSO) nanodots, the film switches from the compressive out-ofplane stress component to a tensile one. It is shown that the size and concentration of the nanodots can be tuned by means of growth kinetics and through modification of the La excess in the precursor chemical solution. The driving force for the nanodot formation can be attributed to a cooperative effect involving the minimization of the elastic strain energy and a thermodynamic instability of the LSMO phase against the formation of a Ruddelsden-Popper phase Sr3Mn4O7 embedded in the film, and LSO surface nanodots. The mechanism can be described as a generalization of the classical Stranski-Krastanov growth mode involving phase separation. LSO islands induce an isotropic strain to the LSMO film underneath the island which decreases the magnetoelastic contribution to the magnetic anisotropy. ©2009 WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim.