Abstract Atomically smooth surfaces with linearly aligned atomic steps in AlGaN layers were demonstrated by the sputtered AlN template with reduced compressive strain using sapphire substrates with 0.2° misorientation off angle. The hillock structures owing to spiral growth were absent on the surfaces of Al 0.72 Ga 0.28 N and Al 0.80 Ga 0.20 N. In both samples, atomic force microscopy (AFM) images revealed atomically smooth surfaces with a root mean square roughness of approximately 0.2 nm, and aligned atomic steps. Furthermore, hillock formation owing to spiral growth was confirmed in Al 0.54 Ga 0.46 N. The X-ray diffraction (XRD) ω scan for the 0002 reflection showed that AlGaN maintained high orientation property to the c-axis direction of AlN. The best full width at half maximum achieved in this study were 13 and 15 arcseconds for Al 0.80 Ga 0.20 N and AlN, respectively. These results indicate XRD and AFM measurements were correlated. Furthermore, correlations were observed using transmission electron microscopy.