In this study, coating buildup process of ceramic powder Al2O3 deposited on steel substrate by atmospheric plasma spraying is simulated by creating a thermo-mechanical FEA model that utilizes the element death and birth techniques in ANSYS commercial software. The simulation process starts with side-by-side deposition of coarse subparts of the ceramic layer until the entire coating is created. Simultaneously, the heat flow into the material, initial quenching stress, thermal deformation and particle impact impulse transfer are computed. The purpose is to be able to predict - for the considered spray powder and substrate material - the development of residual stresses and to assess the risk of coating failure. The model allows the prediction of heat flow, temperature profile and residual stress development over time and position in the coating and substrate. The proposed model has been successfully run and results were experimentally verified by comparing with actual residual stresses measured by the hole drilling method.