Plastic strain gradients can influence the work-hardening behaviour of metals due to the accumulation of geometrically necessary discolations at the micron/submicron scale. A finite element model based on the conventional theory of mechanism-based strain-gradient plasticity has been developed to simulate the micropillar compression of Cu-Fe thin films and multilayers. The modelling results show that the geometric constraints lead to inhomogeneous deformation in the Cu layers, which agrees well with the bulging of Cu layers observed experimentally. Plastic strain gradients develop inside the individual layers, leading to extra work-hardening due to the accumulation of geometrically necessary dislocations. In the multilayer specimens, the Cu layers deform more severely than the Fe layers, resulting in the development of tensile stresses in the Fe layers. It is proposed that these tensile stresses are responsible for the development of micro-cracks in the Fe layers.