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In a magnetic tunnel junction, the formation of an insulator is sensitive and critical to the stable performance and reproducibility of the junction. The oxidation path and the microstructural change with time of the insulator in natural oxidation have been studied by the high-resolution transmission electron microscopy. It has been observed that the oxidation path is primarily through the grain boundary at an early stage of oxidation and then through the grains at a later stage. The morphology of the oxide layer was rugged and modulated. There also occurred an isotropic volume expansion with increased oxidation. It was observed that the ferromagnetic Co layer below an insulator was partially oxidized because of the preferred grain boundary oxidation. When this multilayer was annealed, the locally oxidized Co layer was reduced and the metallic layer formed as a continuous film type, thereby improving the interface. © 2002 American Institute of Physics.