The effects of the stress state transition from plane stress at the workpiece surface to plane strain in the central region of the chip formation zone were studied. A finite element analysis of the incipient chip formation process was performed. The model included heat generation and temperature induced workpiece material property changes. The primary result is that the unique high strain, high strain rate, large free surface characteristics of the metal cutting process can result in qualitatively different deformation behavior across the shear zone. Temperatures are higher in the regions near the surface of the workpiece than in the central region. In extreme cases, this will result in strain hardening behavior in the plain strain regions and thermal softening of the work material near the surface.