Three-dimensional dislocation dynamics simulations were used to examine the role of surface passivation on the plasticity of thin films. A simple line-tension model was used to model the dislocation transmission cross grain boundaries. We find that passivated thin films have a higher hardening rate and strength than freestanding films and that the hardening rate increases with decreasing film thickness. Under unloading, passivated films exhibit a significant Bauschinger effect in which reverse plastic flow occurs during unloading. The Bauschinger effect is enhanced by an increasing pre-strain or by decreasing the aspect ratio of the film. The reverse motion of dislocation pile-ups and the collapse of misfit dislocations were found to be responsible for the observed Bauschinger effect in passivated films. The predicted deformation behavior is in excellent agreement with that seen experimentally.