Plywood sheathed timber shearwalls are commonly incorporated in timber structures to resist wind and earthquake induced lateral, forces. Such shearwalls are classified in the NZS 4203:1984 earthquake loading provisions as being ductile and are currently designed to earthquake load levels of 25% of the smoothed elastic response spectrum force, i.e. corresponding to SM = 1 in terms of NZS 4203:1984 notation. However, a case study is examined which illustrates that compliance with the NZS 3603:1981 permissible wind-seismic connection load and stress levels does not ensure ductility. Recommendations are made for a capacity design procedure in which the sheathing nailing acts as the ductile load limiting element. Even when this is achieved, cyclic loading of the walls at seismic design load levels causes progressive degrading of strength and stiffness properties resulting in a pinched hysteretic loop. The displacement demands on walls in which this occurs when subjected to a design intensity earthquake ground motion are compared in the paper with the corresponding displacement demands on elastic plastic structures. Selected test results are presented of eleven full scale shearwalls subjected to cyclic static and shaketable loading. The performance of the sheathing nailing, framing connections and foundation connections is reported in detail. Based on the test observations and an analysis of the force distribution within the framing, particular details are recommended to ensure ductile response. A theoretical time history single degree of freedom dynamic idealisation is described which represents the observed wall behaviour, and which is suitable for incorporation into multistorey analyses.