With the rapid development in larger-area HgCdTe infrared detector device, high-quality HgCdTe epilayers grown by molecular beam epitaxy (MBE) are required. One of its challenges is to reduce the high dislocation density in HgCdTe. In this paper, thermal annealing (TA) had been performed and the best annealing temperature and time have been acquired. A series of researches were performed to study the effects of the CdTe passivation layer over HgCdTe on dislocation reduction after thermal annealing. The relation of lattice mismatch stress and thermal stress in HgCdTe layer in the TA process was studied by theoretical calculation. Reciprocal space of X-ray rocking curve of HgCdTe was also analyzed. It explained the different phenomena of HgCdTe epilayer with and without CdTe cap in the TA process.