ArF (193nm) immersion lithography is considered as the most promising next generation technology and significant effort to establish the immersion process for semiconductor device HVM is currently focused on the tool, material and process development. One of the serious issues in the immersion process for the commercial semiconductor production is the immersion-specific defects. Typical immersion-specific defects are nanobubble, watermark (W/M) defect, and degradation of pattern profile caused by resist components leaching. The nanobubbles, which exist in the immersion medium such as water, deform the optical image, and then cause the pattern profile degradation. Small water droplet left on the resist film after scanning exposure causes W/M defect. Leaching of resist component induces insufficient de-protection reaction at the resist surface region, then cause the T-top pattern profile or bridge type defect.Among these immersion-specific defects, the effective countermeasure against W/M defect has not been established yet, because the mechanism of W/M defect formation is not fully figured out. From the model experimental result, we have found that W/M defect formation depends on the characteristics of photoresist and topcoat materials. Then we have developed the new immersion topcoat which is soluble into aqueous TMAH developer, and this material provides practical solution for W/M defect reduction. In this paper, we will report the mechanism of W/M defect formation which is related to the characteristics of photoresist and topcoat material. Also W/M defect reduction process by using alkaline soluble immersion topcoat will be discussed in detail.