TiAlCN thin films have been known for their high hardness, favorable toughness and wear properties. Nevertheless, a comprehensive theoretical study conveying the mechanism for the effects of dissolved carbon on the mechanical properties, and thermal stability of TiAlN is still missing. Here, we studied the influence of carbon addition on the structure, modulus and thermal stability of TiAlN by first-principle calculations. The calculated formation energies indicate that carbon preferentially occupies nitrogen site and decreases the solubility of Al in cubic TiN. Furthermore, the enhanced ductility and decreased shear modulus by carbon addition revealed by our calculations, nicely explain the experimentally observed exceptional toughness of TiAlCN. The decomposition enthalpy calculations suggest that c-Ti(C,N) and c-AlN are the most probable decomposition products of TiAlCN. The reduced diffusion barriers of Al, the dominant diffusing atoms, indicate promoted spinodal decomposition process by carbon addition.