In crystalline, dislocation-free, Si/Ge nanowire (NW) axial heterojunctions grown using the vapor-liquid-solid (VLS) technique, transmission electron microscopy (TEM) photoluminescence (PL) and Raman spectroscopy reveal a SiGe alloy transition layer with preferential chemical composition and strain. In addition to the lattice mismatch, strain due to the difference in Si and Ge thermal expansion is observed. We find, in agreement with theoretical predictions, that the strain can be partially relived by lateral nanowire expansion in the vicinity of the Si/Ge heteroj unction. In addition to the observed nanowire lateral expansion, the lattice mismatched induced strain could be relaxed by other mechanisms including intermixing, formation of structural defects and partial amorphization. The conclusions are supported by analytical TEM measurements.