Finite element analysis is used to study the crack growth behaviour of ceramics containing tetragonal zirconia, which can undergo a stress-induced martensitic transformation with both dilatation and shear strain components. The finite element model is based on a continuum theory which describes the plastic, pseudo-elastic and shape memory behaviour of such ceramics due to the phase transition. First, the continuum model is used to study the possibility of strain localization phenomena, and the associated loss of ellipticity of the governing equations is taken as an indicator of critical transformations. Based on these results a set of parameters is generated which guarantee subcritical transformation behaviour. Next, mode I crack growth simulations are performed by using an incremental loading algorithm with a nodal release technique to simulate crack advance when the critical stress intensity at the crack tip is reached. The development of the transformation zone near the crack tip is studied in detail, focusing in particular on the effect of the transformation shear component. Transformation zones and crack growth resistance curves are given to make comparison with experiments feasible. It is found that the shear component of the transformation, which has been neglected in most previous investigations, has an important influence on the toughening behaviour.