Flanged shear walls are used extensively in moderate- and high-rise buildings to resist lateral loads induced by earthquakes. The seismic performance of many buildings is, therefore, closely linked to the behavior of the reinforced concrete walls. They must be carefully designed to provide not only adequate strength, but also sufficient ductility to avoid brittle failure under strong lateral loads, especially during an earthquake. When concrete in the compression zone of a shear wall is confined by transverse reinforcement, both the strength and ductility of the wall would be increased. However, none of the existing analysis methods in the codes allows for such effect. Herein, a finite element model that takes into account the effect of concrete confinement is developed for nonlinear analysis of reinforced concrete structures. In this model, the confinement effect of the transverse reinforcement is incorporated by adjusting the compressive stress-strain relation of the concrete according to the confinement index proposed by Kappos. Shear wall models tested by others under constant vertical load and monotonically increasing horizontal load are analyzed and the analytical results for the failure modes and load-deflection curves of the walls are found to be in good agreement with the experimental results. Using the finite element model, a parametric study on the effect of concrete confinement on the behavior of shear walls has been carried out. It is revealed that the confinement of the concrete in the compression zone can significantly increase the lateral strength and ductility of the wall. The increases in lateral strength and ductility due to concrete confinement are greater in walls with greater height to width ratio and/or subjected to larger vertical loads. There is an obvious diminishing return of the further gain in lateral strength or ductility as the quantity of confinement reinforcement increases to beyond certain limit. The contribution of the concrete confinement to ductility is generally more significant than the corresponding contribution to lateral strength especially when the amount of confinement reinforcement is relatively large.