The severe difficulty to resolve simultaneously both the macroscopic deformation process and the dislocation dynamics on the atomic scale limits our understanding of crystal plasticity. Here we use colloidal crystals, imaged on the single particle level by high-speed three-dimensional (3D) confocal microscopy, and resolve in real-time both the relaxation of the epitaxial misfit strain and the accompanying evolution of dislocations. We show how dislocation interactions give rise to the formation of complex dislocation networks in 3D and to unexpectedly sharp plastic relaxation. The sharp relaxation is facilitated by attractive interactions that promote the formation of new dislocations that are more efficient in mediating strain. Dislocation networks form fragmented structures, as dislocation growth is blocked by either attractive interactions, which result in the formation of sessile dislocation junctions, or by repulsion from perpendicular segments. The strength of these blocking mechanisms decreases with the thickness of the crystal film. These results reveal the critical role of dislocation interactions in plastic deformation of thin films and can be readily generalized from the colloidal to the atomic scale.