The effect of the strain gradient on the stretch flange deformation limit of steel sheets was investigated by hole expansion tests under various forming conditions and by FEM forming simulations. The hole expansion ratio was changed by changing the initial hole diameter and punch shapes. This study clarified the fact that deformation limit strain increases, as it does not depend on the initial hole diameter or punch shape, and thus the strain gradient increases. The deformation limit thickness strain of the stretch flange portion could be changed by changing the strain gradient. These results suggest that the formability of the stretch flange deformation area should be determined from not only the maximum principal strain but also the strain gradient. Then, the accuracy of stretch flange formability prediction by considering the strain gradient for actual car body parts in mass production was investigated. The maximum principal strain and the strain gradient of the parts were calculated by FEM or measured in the press part. These results suggest that the formability of the stretch flange deformation area for actual car body parts could not be predicted by not only the maximum principal strain or the thickness reduction, but also the conventional FLD. This investigation verified the accuracy of stretch flange formability prediction by considering the strain gradient for actual car body parts.