A strained epitaxial film often undergoes surface roughening during growth and subsequent processes. One possible means to reduce roughening so as to produce an epitaxial film with a flat surface is to deposit an oxide cap layer on the film to suppress the kinetic process of roughening. This paper analyzes the effect of a cap layer on the stability of an epitaxial film and the kinectics of roughening, assuming the interface diffusion between the film and the cap layer as the dominant mechanism of mass transport. A variational principle is formulated, which leads to a nonlinear evolution equation coupled with a boundary-value problem of elasticity. A linear perturbation analysis is then performed, from which the critical wavelength and the fastest growing mode of roughening are obtained. It is found that both the thickness and the residual stress of the cap layer play important roles in controlling the morphological stability and the roughening kinetics.