The laboratory dynamic compaction test was used to study the effects of dynamic impact loads on the shear strength characteristics of loess. Loess specimens were compacted by different numbers of blows and their shear strengths measured. The experimental results revealed that the shear strength varies in stages with the number of blows. During the initial stage, the shear strength increases with the number of blows. It reaches a peak value and then decreases with the number of blows. To reveal the relationship between this alternation in shear strength and microstructural variation, quantitative microstructural analyses were performed on some tested specimens at different stages of strength evolution. This microstructural study demonstrated that the variation of shear strength is directly related to the alteration of microstructure. It is concluded that the shear strength of loess is basically controlled by its microstructural state. Growing particle size heterogeneity, varying particle orientations and increasing microstructural damage are the main causes of the alternation of shear strength.