We have studied die evolution of the lattice parameter of epitaxial Fe(001) on MgO(001) vs. thickness between 1 and 200 monolayers using Grazing Incidence X-ray Scattering. We show that an interaction exists between the islanded film and the substrate, which allows the film to be incommensurate, even when the islands are too small to allow full dislocations to exist. For the conditions studied, the Fe lattice parameter increases toward the MgO lattice parameter with increasing thickness in the 1–10 monolayer coverage regime, and then relaxes back toward the bulk Fe lattice parameter at greater thicknesses. We employ a model for the interaction between film islands and the substrate which explains large changes in the lattice parameter of the Fe in the 1–10 monolayer thickness range. Relaxation at larger thicknesses is described by continuum elasticity theory.