The present study investigates the behaviour of cold-formed steel (CFS) shear walls sheathed with plywood boards under monotonic and cyclic in-plane shear loading. The study aims to evaluate the critical parameters influencing the load-carrying capacity of these shear walls and failure mechanisms at the sheathing-to-frame connections. The hysteresis performance of the shear walls was analysed to understand energy dissipation characteristics, stiffness degradation, and pinching effects. An examination of failure modes revealed a progressive sequence of failure mechanisms, including screw tilting due to initial loading, bearing deformation of the screws against the sheathing, and pull-through failure at higher load levels, ultimately leading to screw connection failure. The transition between these failure modes was crucial in determining the structural performance of the shear walls. To further investigate these failure mechanisms, 3D Digital Image Correlation (DIC) analysis was employed to capture strain distribution patterns and localized deformations, offering deeper insight into the shear response and progressive failure of the shear wall. The results indicate that screw spacing and sheathing thickness significantly influence shear wall performance, with screw spacing playing a crucial role in altering failure mechanisms and energy dissipation. The test findings provide insights into optimizing screw connections to enhance shear capacity and prevent premature failure in CFS shear wall construction. The integration of hysteresis performance evaluation and 3D DIC analysis further distinguishes this research by enabling a comprehensive understanding of the structural response, which is not commonly explored in similar studies.