We have studied the thermal stability of the Al/TiSi2/Si contact system with Rutherford backscattering and glancing-angle x-ray diffraction. The results show that this sytem is thermally stable up to 550°C for 30 min annealing. At higher annealing temperatures Al starts to react with TiSi 2 by forming the Ti7Al5Si12 ternary compound. Electrical measurements on shallow junction diodes with Al/TiSi2/Si contacts show that in contrast to the thermal stability results the device junctions were all shorted after annealing for 30 min at 400°C. Investigation of the failure mechanism with scanning electron microscopy and electron microprobe reveals that even during low temperature annealing the Si diffuses through the TiSi2 and dissolves into the Al top layer. At the same time Al diffuses through the TiSi2, penetrates into the silicon substrate, and shorts device junctions. These processes are particularly amplified by a large area ratio of Al pad to Si contact opening.