We demonstrate that surface stresses in epitaxially grown VO₂ nanowires (NWs) have a strong effect on the appearance and stability of intermediate insulating M₂ phases, as well as the spatial distribution of insulating and metallic domains during structural phase transitions. During the transition from an insulating M1 phase to a metallic R phase, the coexistence of insulating M₁ and M₂ phases with the absence of a metallic R phase was observed at atmospheric pressure. In addition, we show that, for a VO₂ NW without the presence of an epitaxial interface, surface stresses dominantly lead to spatially inhomogeneous phase transitions between insulating and metallic phases. In contrast, for a VO₂ NW with the presence of an epitaxial interface, the strong epitaxial interface interaction leads to additional stresses resulting in uniformly alternating insulating and metallic domains along the NW length.