To form the required shapes from advanced high strength steels sheets, such as dual-phase (DP) steel, shearing processes are commonly used. In general, although good cut-edge characteristics can be often achieved by setting a small shearing clearance, a scar still remains a major defect on the cut-edge. Therefore, in the present study, the mechanism of scar formation of a DP steel sheet, grade SPFC980Y (JIS) subject to a shearing process was investigated and clarified based on the microstructural evolution, fracture mechanism, and a stress distribution analysis. The microstructural evolution in both tensile test specimens and sheared workpieces were observed to identify the fracture mechanism. The angle between the shear band and the elongated grain flow direction during tensile testing was examined and used to predict the angle of initial fracture and its propagation during the shearing process. With the stress distribution analysis of the shearing zone during the shearing process, the fracture could not propagate into the shearing zone and be directed to the die tip, resulting in the formation of a smooth region again. This feature occurred as a cyclic loop as the punch stroke proceeds and resulted in scar defects in the case of SPFC980Y. However, when the fracture propagation remained in the shearing zone, the fracture was not delayed and fracture was completely generated on the cut-edge in the case of a baseline SPCC steel.