Grind-hardening is a type of composite technology, which utilizes the dissipated heat in the grinding zone for hardening of the workpiece surface layer. The temperature of the workpiece surface, when heated by the grinding, is higher than the austenitizing temperature for short time, then it is lowered by quick cooling causing martensitic transformation to happen in the surface layer of the workpiece. The residual stress is formed by the thermal stress, phase transformation stress and mechanical stress in the grind-hardening layer. In this paper, the forming mechanism of the residual stress in grind-hardening technology is analyzed in theory; the residual stress field in the surface layer is calculated by the finite element, according to changes in the specific volume of the microstructure, the temperature field and the temperature history of the surface layer at different depths. The temperature field is achieved by computer simulation technology. The result of residual stress calculations indicates that the change tendency of the grind-hardening residual stress in the finite element analysis is consistent with the experiments.