This paper investigates the effect of shear stresses on the determination of residual stresses in isotropic and orthotropic materials by the slitting method. A great deal of research effort is focused on the estimation of the residual stress component normal to the slit face using strain data measured by strain gauges installed on the top or the back surface of the stressed specimens. However, the slitting process will also release two in-plane and out-of-plane shear stress components, which may influence the measured strains. For the two specimens of carbon/epoxy and glass/epoxy laminated composites as well as a steel specimen, the distribution of released strains on the top and the back surfaces due to the shear stresses is calculated using finite element method and compared with those due to the residual normal stress. The results show that on the back surface, the shear stresses have a very small effect on the measured strains. However, on the top surface, strains due to the residual shear stresses are significant compared with those due to the residual normal stress and cannot be ignored. A method using two top surface strain gauges in both sides of the slit is presented to separate the effects of normal and shear stresses from each other. Also, strains due to the in-plane and the out-of-plane shear stresses could be isolated from each other. If these separations could be carried out successfully, the residual shear stress can be calculated by the proposed formulation.