During charge and discharge of lithium-ion battery, the concentration gradient produced by lithium- ion diffusion process and deformation caused by lithiation expansion of the active material result in diffusion-induced stress. Excessive diffusion-induced stress can cause various mechanical failure modes such as cracking of active particles, separation between active particles, fracture of active layers, and delamination between active layers and current collectors, which eventually leads to a series of failure phenomena such as capacity attenuation, impedance rise and cycle life loss of the battery. Therefore, the diffusion-induced stress and the derived failure mechanism of lithium-ion battery become one of the research hotspots in the field of lithium-ion batteries, which has important theoretical and practical value. In this paper, research progress of the failure mechanism of lithium-ion battery caused by diffusion-induced stress in recent years is reviewed from different levels of the active particle, the active electrode, the half-cell, the cell unit, and the cell. The generation mechanism and research methods of diffusion-induced stress are introduced. The influence of diffusion-induced stress on the mechanical and electrochemical properties of the battery is analyzed, and the influencing factors of the diffusion-induced stress are summarized. Finally, the future research directions and development trends are prospected.