The character of the shear instability in the metal-cutting operation is discussed with reference to results from machining En58C austenitic stainless steel. It is shown that at certain cutting speeds a continuous chip which exhibits large serrations is formed. The sequence of events in a typical cycle of serration formation has been established from a series of photomicrographs of ‘quick-stop’ specimens, and the associated dynamic cutting forces have been recorded. It is shown that the serrated chip formation is not caused by machine-tool vibration but is related to the inherent metallurgical features of the steel, for the machining conditions used. The essential feature of the chip formation is a varying shear strength of the work material at the chip/tool interface: a phenomenon that is similar to the stick-slip conditions described in previous work on the discontinuous chip formation. In a typical cycle, compressive stresses build up ahead of the tool as material sticks on to the rake face; selected shear then occurs on a primary shear plane of decreasing length as the chip moves away with greater velocity. The forms of the slip-line fields for the two extremes of deformation-zone geometry are considered and the effect of the chip formation on tool wear is discussed.