A finite element study has been made of subsurface rail-wheel contact stresses in a heavy haul railway rail, and the near-threshold fatigue behaviour investigated for both standard carbon and head-hardened rail steels under mode II and mode III shear-loading conditions. Small, semielliptical regions of shear mode growth were found in the mode III tests and are thought to be equivalent to shell cracks. Mode I branch cracks arising from these are similarly believed to correspond to the generation of a transverse defect. Gauge corner shear stresses from the finite element analysis are used together with threshold stress intensity factor ranges from the fatigue tests on standard carbon rail in a fracture mechanics model of the transition from a shell to a transverse defect. When the effects of crack face friction and residual stress in the rail head are incorporated into the model, excellent agreement is obtained between the predicted size of a shell and that found from fractographic examinations of failed rail samples. © 1991.