The formation mechanism of defects including pickle patch, streaky line and under-alloying that frequently observed on the surface of galvannealing sheet steel in continuous galvanizing line have been characterized by scanning electron microscopy, transmission electron microscopy, optical microscopy, electron probe microanalysis and roughness profiler. It is clear that both substrate composition and its surface microstructure immediately before dipping into molten Zn are essentially critical for the formation of optimum coating of the desired microstructure and properties. A appearance of various thin oxidation layers at coating/substrate interface during annealing process was found to be the main factor causing surface defect and appeared to be associated with different rate of Fe-Zn reaction. A microstructural model was proposed to explain the mechanism of defect formation on the surface of galvannealing sheet steel.