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Residual stress exists extensively in biological and engineering structures. Here we report that residual stress can be engineered to significantly enhance the strength and ductility of gradient materials. In-situ synchrotron experiments revealed that the strongest strain hardening occurred in the layer with the highest compressive residual stress in a gradient structure. This layer remained elastic longer than adjacent layers during tension, producing high hetero-deformation induced stress to increase strength and enhancing work hardening even after the disappearance of the compressive stress to increase ductility. This finding provides a new paradigm for designing gradient structures for superior mechanical properties.