A semiconductor device having a strained channel and a method of manufacture thereof is provided. The semiconductor device has a gate electrode formed over a channel recess. A first recess and a second recess formed on opposing sides of the gate electrode are filled with a stress-inducing material. The stress-inducing material extends into an area wherein source/drain extensions overlap an edge of the gate electrode. In an embodiment, sidewalls of the channel recess and/or the first and second recesses may be along {111} facet planes.