The potential for structural failure of consolidated clay materials, which is of great importance in many applications, typically are assessed by measuring the localized strain bands that develop under anisotropic load stress. Most methods are precluded from providing a full understanding of the strain anisotropy because they only give two-dimensional information about the stressed clay blocks. The purpose of the present study was to investigate three-dimensional strain localization in a kaolinite matrix, caused by strain anisotropy due to a biaxial plane-strain test, using a relatively new method known as Anisotropy of Magnetic Susceptibility (AMS). This method involves induction of magnetism in an oriented sample in different directions and measurement of the induced magnetization in each direction. The AMS analyses were performed on core samples from different parts of the deformed kaolinite matrix. The degree of magnetic anisotropy (P′), which is a measure of the intensity of magnetic fabric and a gauge of strain intensity, was shown to be greater in cores containing shear bands than in those containing none. A threshold value for P′ for the deformed kaolinite matrix was identified, above which shear bands may develop. The comparison of the shape parameter (T), obtained from undeformed and deformed samples, illustrated a superimposition of prolate strain over the original oblate fabric of the kaolinite matrix. The orientation of the principal strain axis revealed that reorientation or rotation of the principal axis occurred along the shear bands.