A strained-channel transistor structure with lattice-mismatched zone and fabrication method thereof. The transistor structure includes a substrate having a strained channel region, comprising a first semiconductor material with a first natural lattice constant, in a surface, a gate dielectric layer overlying the strained channel region, a gate electrode overlying the gate dielectric layer, and a source region and drain region oppositely adjacent to the strained channel region, with one or both of the source region and drain region comprising a lattice-mismatched zone comprising a second semiconductor material with a second natural lattice constant different from the first natural lattice constant.