The microstructure of surface peeling in finish rolled Cu-0.1Fe-0.03P sheet is analyzed by scanning electron microscope and energy dispersive spectroscope. Fe-rich areas of different contents are observed in the matrix. The stress distributions and strain characteristics at the interface between Cu matrix and Fe particle are studied by elastic-plastic finite element plane strain model. Larger Fe particles and higher deforming extent of finish rolling are attributed to the intense stress gradient and significant non-homogeneity equivalent strain at the interface and accelerate surface peeling of Cu-0.1Fe-0.03P lead frame sheet.