The large majority of New Zealand's road network is constructed from thin surfaced unbound flexible pavements where a granular layer provides the main structural strength of the pavement. The current New Zealand empirical design theory states that permanent deformation should largely be attributed to the subgrade and that shape loss in the granular layers is simply a consequence of a previously deformed subgrade. However, recent research and field trials have indicated that basecourse shear strains may be a large contributor to rutting in unbound granular layers. The purpose of this investigation was to determine whether the shear strains induced under heavy vehicle loads can be accurately measured using in-situ induction coils and whether the shear strains are related to permanent pavement deformation. In this investigation a rosette configuration of free floating induction coils was designed to measure principal basecourse shear strains. The principal strains were then used to construct Mohr's circle of strain in order to calculate the maximum shear strain occurring in the granular layer. The rosettes were installed in two full scale test pavements at the Canterbury Accelerated Pavement Testing Indoor Facility (CAPTIF). The pavements were loaded with an 8 tonne dual wheel axle load for 1 million and 600,000 load applications respectively and strain and rut depth testing occurred periodically throughout the test life. The research showed that the rosette coil arrangement was a feasible and accurate device for measuring in-situ shear strains in granular pavement layers. Finite element modelling confirmed the accuracy of the system. The results from the two CAPTIF pavements showed that there was a strong linear relationship between the magnitude of the basecourse shear strain and the rut depth at the end of the post construction compaction period. The investigation also showed that shear strain magnitudes in the region of 5000µƐ result in rapid shear failure in the granular layer. In addition, after the post construction compaction period had finished, the rate of change of shear strain was proportional to the rate of change of rut development. The results indicated that there was approximately a 4:1 ratio between the rate of change in rut depth and the rate of change in shear strain after the initial post construction period. Investigations into the effect of load magnitude on the magnitude of the basecourse shear strain showed that a linear relationship existed between the two parameters. Further to this, load location testing revealed that for a dual wheel configuration, 50mm of lateral wheel variation either side of a point of interest was the maximum allowable movement that would result in similar strain measurements. The research highlighted the dominance of the longitudinal tensile strain and shear strain over the vertical compressive strain within granular layers. As a result, these pavement responses should be considered in further granular pavement research in addition to the commonly used vertical compressive strains.