The microstructure and properties of ion plated titanium nitride film can be improved by adding rare earth element yttrium. Y-modified titanium nitride (Ti(Y)N) film exhibits an excellent corrosion resistance and binding strength to the substrate of A3 steel. The microstructure characteristics of Ti(Y)N/A3 system have been investigated by X-ray diffraction, ion probe mass analysis and cross section transmission electron microscopy. The results show that yttrium is enriched at the interface of Ti(Y)N/A3 system and the modification of Y at the interface leads to a very good metallurgical transition band from the substrate to the film and the preferential orientation along close-packed TiN(lll) crystal plane, which may be the major reasons for the improvement of the properties of the Ti(Y)N film.