By high resolution scanning tunneling microscopy, we investigate the morphological transition from pyramid to dome islands during the growth of Ge on Si(001). We show that pyramids grow from top to bottom and that, from a critical size on, incomplete facets are formed. We demonstrate that the bunching of the steps delimiting these facets evolves into the steeper dome facets. Based on first principles and Tersoff-potential calculations, we develop a microscopic model for the onset of the morphological transition, able to reproduce closely the experimentally observed behavior.