A semiconductor device (10) is formed by positioning a gate (22) overlying a semiconductor layer (16) of preferably silicon. A semiconductor material (26) of, for example only, SiGe or Ge, is formed adjacent the gate over the semiconductor layer and over source/drain regions. A thermal process diffuses the stressor material into the semiconductor layer. Lateral diffusion occurs to cause the formation of a strained channel (17) in which a stressor material layer (30) is immediately adjacent the strained channel. Extension implants create source and drain implants from a first portion of the stressor material layer. A second portion of the stressor material layer remains in the channel between the strained channel and the source and drain implants. A heterojunction is therefore formed in the strained channel. In another form, oxidation of the stressor material occurs rather than extension implants to form the strained channel.