Despite the large number of abrasive waterjet machin ing (AWJM) models developed so far, there still has been confusion about the nature by which workpiece surfaces are eroded. It is believed that analysis of stresses generated at the AWJ cutting interafce could provide deeper insight to explain such an eros ion behavior. This paper presents a stress analysis of AWJM using a nonlinear dynamic finite element (FE) code in order to explain the behaviour of the process. The main objective is to develop an erosion mechanism which would correctly describe the abrasi ve - material interaction. The new model considers both AWJ dynamic loading conditions and nonlinear material behavior. The results show that the workpiece material fails due to highly localized plastic deformation caused by compressive stresses, specially a t the AWJ cutting interface. Also AWJM causes residual stresses to remain in the workpiece material after machining.