The formation of the cracked shell is confirmed by HRTEM for the Ge/GeO2 core/shell nanoparticles fabricated by the pulsed laser deposition method and a rapid thermal annealing technique. The determined two-photon absorption in Ge/GeO2 core/shell nanoparticles with a cracked shell is an instantaneous nonlinear process and is enhanced almost 2 times compared with that in pure Ge nanoparticles. Our simulation results illustrate that the oxidation of confined Ge/GeO2 core/shell nanoparticles results in the formation of cracks in GeO2 shells. It indicates that strain gradients induced in the confined GeO2 shell during the oxidation process can facilitate the formation of the cracked GeO2 shell and the shape evolution of Ge/GeO2 core/shell nanoparticles. These results demonstrate that the strain can manipulate the microstructure, morphology and optical properties of confined core/shell nanoparticles.