Film-forming compositions which are substantially free of organic solvent and capable of forming a generally continuous film at ambient temperature are provided. The film-forming composition includes at least one thermosettable aqueous dispersion of polymeric microparticles having functionality adapted to react with a crosslinking agent. The polymeric microparticles are prepared by mixing under high shear conditions (1) at least one hydrophobic polymer having reactive functional groups; and (2) at least one hydrophobic crosslinking agent containing functional groups which are reactive with the functional groups of the polymer. Further provided is a multi-component composite coating composition which includes a pigmented base coat and a transparent topcoat of the substantially organic solvent-free film-forming composition described above. Substrates coated with the same are also provided. Additionally, a method for preparing the aqueous dispersion of polymeric microparticles is provided. The substantially organic solvent-free film-forming compositions of the invention are storage stable at room temperature and provide coatings with excellent appearance and performance properties such as adhesion and scratch resistance. The film-forming compositions are suitable for wet-on-wet application over a base coat with little or no mud-cracking.