We have investigated the anharmonicity and local lattice distortion in strained Ge-dilute Si1−xGex alloy using Ge K-edge extended x-ray absorption fine structure measurement coupled with ab initio molecular dynamics simulation. Pronounced asymmetry is for the first time revealed for the Ge–Si first nearest-neighbor (NN) distribution even at room temperature, in good agreement with theoretical simulations. In comparison with harmonic approximation, the anharmonicity contributes an additional shift of 0.011 Å to the Ge–Si first NN bond distance, which is further found to be crucial to the qualitative change (i.e., contracting or stretching) of the Ge–Si second NN bond distance relative to the corresponding Si–Si bond distance in bulk Si. As the modifications of higher NN shells arise from the competition between the NN bond-distance stretching and the tetrahedral bond-angle deviation, those results indicate that the anharmonicity is critical in the proper determination of the local strain accommodation mode and thus the substrate effect. Farther NN shells exhibit slight asymmetry. Our findings reconcile the long-standing controversy regarding the dominant local strain relaxation mechanism in strained Ge-dilute Si1−xGex alloys.