Density functional theory simulations were used to study Sn defect clusters in the oxide layer of Zr-alloys. Clustering was shown to play a key role in the accommodation of Sn in ZrO2, with the {SnZr:VO}×bound defect cluster dominant at all oxygen partial pressures below 10−20atm, above which SnZr×is preferred. {SnZr:VO}×is predicted to increase the tetragonal phase fraction in the oxide layer, due to the elevated oxygen vacancy concentration. As corrosion progresses, the transition to SnZr×, and resultant destabilisation of the tetragonal phase, is proposed as a possible explanation for the early first transition observed in Sn-containing Zr–Nb alloys.