Nanocrystalline Ni–W coatings show exceptional strength; however, they exhibit poor toughness due to limited ductility and high residual stresses which impede their use in practical applications as a potential hard chrome replacement. In the present study, compositionally modulated multilayer (CMM) coatings with alternate layers of Ni-1 at% W (soft) and Ni-15 at% W (hard) of three different layer thicknesses of 1, 0.5, and 0.1 μm are developed by pulse reverse electrodeposition to achieve the strength-ductility synergy, thereby enhanced wear resistance. Microcompression test results reveal that all the CMM coatings exhibit remarkably higher strain-hardening ability than the homogenous coatings. Significant fluctuations in the strain-hardening rate and a positive shift in the onset stress for the work-hardening stages were observed with the layer thickness. This suggests a strong interplay between the hard and soft layers on the deformation characteristics of multilayer coatings. Detailed electron microscopy of the cross-section of the deformed micropillars shows substantial evidence of co-deformation of both layers. A mechanism is proposed to explain the enhanced strain-hardening in multilayers involving the strength incompatibility arising in the layers leading to lateral constraints, resulting in strain gradient plasticity, stabilizing of local shear by the soft layers, and the barrier effect of the interfaces.