To make immersion lithography a reality in manufacturing, several challenges related to materials and defects must be addressed. Two such challenges include the development of water immersion compatible materials, and the vigorous pursuit of defect reduction with respect to both the films and the processes. Suitable resists and topcoats must be developed to be compatible with the water-soaked environment during exposure. Going beyond the requisite studies of component leaching from films into the water, and absorption of water into the films, application-specific optimization of photoresists and top coats will be required. This would involve an understanding of how a wide array of resist chemistry and formulations behave under immersion conditions. The intent of this paper is to compare lithographic performance under immersion and dry conditions of resists containing different polymer platforms, protecting groups, and formulations. The compatibility of several developer-soluble top-coat materials with a variety of resists is also studied with emphasis on profile control issues. With respect to defects, the sources are numerous. Bubbles and particles created during the imaging process, material remnants from incomplete removal of topcoats, and image collapse as related to resist swelling from water infusion are all sources of yield-limiting defects. Parallel efforts are required in the material development cycle focusing both on meeting the lithographic requirements, and on understanding and eliminating sources of defects. In this paper, efforts in the characterization and reduction of defects as related to materials chemistry and processing effects will be presented.