Cross-laminated timber shear wall systems are used as a lateral load resisting system in multistory timber buildings. Walls at each level typically bear directly on the floor panels below and are connected by nailed steel brackets. Design guidance for lateral load resistance of such systems is not well established and design approaches vary among practitioners. Two cross-laminated two-story timber shear wall systems are tested under vertical and lateral load, along with pull-out tests on individual steel connectors. Comprehensive kinematic behavior is obtained from a combination of discrete transducers and continuous field displacements along the base of the walls, obtained by digital image correlation, giving a measure of the length of wall in contact with the floor below. Existing design approaches are evaluated. A new offset-yield criterion based on acceptable permanent deformations is proposed. A lower bound plastic distribution of stresses, reflecting yielding of all connectors in tension and cross-grain crushing of the floor panel, is found to most accurately reflect the observed behavior.