Abstract The growth of lithium dendrites and propagation of cracks within solid electrolytes present significant challenges to the safety of solid-state lithium-metal batteries, whose underlying failure mechanism remains unclear. Herein, we report a previously overlooked failure mechanism in garnet electrolyte, driven by stress-induced localized phase transition that accelerates Li dendrite short-circuiting. Employing Bragg coherent diffraction imaging, we reveal heterogeneous strain fields and dislocation proliferation within solid-electrolyte grains generated by Li dendrites. Transmission electron microscopy results directly confirm a cubic-to-tetragonal phase transition in the dendrite-penetrated regions. Molecular dynamics simulations further demonstrate that this transition is driven by GPa-level stresses generated by dendrite penetration, accompanied by lattice distortion, point defects and dislocations, which collectively reduce the critical stress for crack propagation. This work provides atomic-scale evidence that stress-induced phase transition is a critical factor in solid-electrolyte failure, identifying new principles for designing dendrite-resistant solid electrolytes for next-generation batteries.