The effect of the in-situ substrate temperature on the residual stress in laser alloyed layer has been investigated. Type 316 stainless steel was laser alloyed with Al-Si powder to achieve a surface layer with high performance. The temperature of the substrate during laser treatment was maintained in range of 20-300℃. The microhardness of the laser alloyed layer was found to be about 2.5 times higher than that of the untreated substrate. Residual stress in the laser alloyed layer was measured by the sin2Ψ technique. Residual stress was found to be decreased with increasing substrate temperature. Increase in the temperature from 20 to 300℃decreases residual stress by 60%, changing the stress state from tension to compression.