A three-dimensional finite element analysis has been developed to compute the out-of-plane normal (known as peel stress) and shear stresses in an adhesively bonded single lap joint (SLJ) with laminated FRP composite plates which, in comparison to other analytical methods for bonded joint analysis, is capable of handling more general situations related to initiation of damages and its growth. Other analytical methods, such as Hart-Smith’s (Hart-Smith, L. J. (1973). Adhesive-Bonded Single Lap Joints, NASA-CR-112236.), are 1-D and mainly focus on obtaining adhesive stresses, while generally ignoring stresses in laminated adherends, particularly interlaminar stresses which are known to be the key contributors to the failure. Unlike the Volkersen’s (Volkersen, O. (1938). Die Niektraftverteilung in Zugbeanspruchten mit Konstanten Laschenquerschritten. Luftfahrtforschung, 15: 41-47.) and Goland-Reissener’s (Goland, M. and Reissner, E. (1944). The Stresses in Cemented Joints, Journal of Applied Mechanics, 11: 17-27.) analysis, the free rotation of the overlap region and adherends are considered in the present analysis. Joining of composite structures using adhesive bonding has always been a concern to the designers because the performance of the joint is severely influenced by the characteristics of the laminated composite adherends, which usually have low inter-laminar strengths. The present method computes local 3D stress fields in the most critical region, which vary along the overlap length. Adhesive layer is a linearly elastic material whereas the adherend materials are orthotropic. Thus an accurate evaluation of 3D local stress fields will enable the failure criterion to be employed effectively to predict joint strength and initiation/propagation of damages. The analysis consists of four steps. In the first step a complete three dimensional stress analysis is carried out with a special importance for the evaluation of out-of-plane stresses. Failure indices at different surfaces are calculated in the second step. The third step identifies the location of damage initiation based on the value of the failure indices. The failure index for the adhesive layer is calculated using quadratic failure criterion (QFC), whereas the Tsai-Wu’s coupled stress quadratic failure criterion is used for the interface of adherend and adhesive. Subsequently, damage propagation is analyzed by fracture mechanics based strain energy release rate (SERR) approach using virtual crack closure technique (VCCT). It is seen that the three-dimensional effects exist in the joint. The stress distributions in the joint overlap region near the free surface are quite different from those occurring in the interior. Also, it is found that the peel stresses are extremely sensitive to this three-dimensional effect, but the shear stresses are not. The value of the failure index at the interface of the loaded adherend (top) and adhesive along the free edge is the highest which indicates the location of the possibility of damage initiation. Such type of damage is considered as an adhesive failure. The propagation of such damage is governed by SERR. It is observed that the individual mode of SERR remains constant over the damage front irrespective of the damage length except at the free edge. Moreover, it is found that contribution of SERR in mode II is prominent compared to the mode I and mode III for the damage propagation due to the adhesive failure in the SLJ.