The effect of micro- and nano-scale heterogeneity on the indentation behavior of the composite structure was studied numerically using the finite element method. The material system of concern is the aluminum (Al)/silicon carbide (SiC) multilayered thin films above the silicon (Si) substrate. The numerical model features the explicit composite structure indented by a conical diamond indenter within the axisymmetric simulation framework. Attention is devoted to the evolution of stress and deformation fields in the layered composite during the indentation loading and unloading processes. It was found that the layered composite, consisting of materials with distinctly different mechanical properties, results in unique deformation patterns. Significant tensile stresses can be generated locally along certain directions, which offers a mechanistic rationale for the indentation-induced internal cracking observed experimentally. The unloading process also leads to an expansion of the tension-stressed area, as well as continued plastic flow in parts of the Al layers. Implications of these numerical findings to the nanoindentation response of metal-ceramic laminates are discussed.