We have systematically investigated the dependence of the crystal structure and the microwave response of laser ablated YBa 2 Cu 3 O z (YBCO) thin films on MgO substrate microstructure formed upon thermal annealing. A dramatic improvement in both crystallinity as well as microwave surface resistance R s (of almost an order of magnitude) is observed for the films grown on substrates annealed for the initial 2 h at 1000 • C in flowing O 2 ambient compared to films deposited on non-annealed substrates. However, for further annealing of the MgO substrate we found no further pronounced improvement in either R s or the crystalline quality of YBCO. The observed improvement in R s for the film grown on an annealed substrate can be explained by the graphoepitaxial growth of YBCO on MgO that results in very good crystallinity of YBCO film. The ratio of 0 • and 45 • grains, D (45 • ) and the degree of in-plane alignment, φ, have a non-monotonic relation with the substrate annealing time. At the same time, a strong correlation is observed between R s and φ, and D (45 • ) , which themselves are dependent on annealing time.