An atomic layer deposition (ALD) coating on active materials of a lithium ion battery is a more effective strategy for improving battery performance than other coating technologies. However, substantial uncertainty still remains about the underlying physics and role of the ALD coating in improving battery performance. Although improvement in the stability and capacity of CeO2 thin film coated particles for batteries has been reported, a detailed and accurate description of the mechanism has not been provided. We have developed a multiphysics-based model that takes into consideration stress mechanics, diffusion of lithium ion, and dissolution of transition-metal ions of spinel LiMn2O4 cathode. The model analyzes how different coating thicknesses affect diffusion-induced stress generation and, ultimately, crack propagation. Experimentally measured diffusivity and dissolution rates were incorporated into the model to account for a trade-off between delayed transport and prevention of side reactions. Along with experimental results, density functional theory results are used to explain how a change in volume, due to dissolution of active material, can affect battery performance. The predicted behavior from the model is well-matched with experimental results obtained on coated and uncoated LiMn2O4-Li foil cells. The proposed approach and explanations will serve as important guidelines for thin film coating strategies for various battery materials.