In order to investigate the effect of parameters such as orientation and surface roughness of a reinforcing material as well as the water content of the clay matrix on the stress-strain and failure behavior of reinforced clay, uniaxial compression tests were performed on clay samples reinforced with a steel inclusion Test results showed that the increase or decrease in strength of reinforced clay samples was found to depend on the orientation of a steel inclusion as well as water content of clay samples. The possible weakening mechanism induced by reinforcement in clay samples was related to the development of cracks along the tips of interface between steel inclusion and clay matrix. A theoretical interpretation of failure behavior of reinforced clay was made by using fracture mechanics theory, and the experimental results were compared with the theoretical predictions. The predicted crack propagation direction obtained from fracture criteria for a material containing a closed crack with friction agreed reasonably well with the measured values obtained from tests.