Ternary wurtzite In0.5Al0.5N films and coatings are promising candidates for microelectronic or optoelectronic devices due to their excellent physical and chemical properties. However, as a universal and non-negligible phenomenon, in-plane strain and its effects on the structure and properties of In0.5Al0.5N still need systematic research. In particular, the deformation mechanism of In0.5Al0.5N under biaxial strain is not clearly understood currently. To reveal the role of the internal relaxation effect in lattice deformation, the lattice variation, thermal stability, and the electronic properties of ternary wurtzite compound In0.5Al0.5N under different biaxial strains are systematically investigated, using first-principles calculations based on density functional theory. The results indicate that, compared with the classic elastic deformation mechanism with constrained atomic coordinates, atom relaxation results in a much smaller Poisson ratio. Moreover, the plastic relaxation In0.5Al0.5N phase, generated by free atom relaxation, exhibits higher thermal stability than the elastic relaxation phase, so it is the most likely phase in reality when biaxial strain is imposed. Meanwhile, the biaxial strain has a remarkable influence on the electronic structure of In0.5Al0.5N films, where a non-linear variety of energy band gaps can be seen between the valance band and conduction band.