There exists frost damage in cold-region tunnels. The circumferential cracks affect the function of tunnels. Using three-dimensional finite elementmethod, the authors analyzed the mechanism of circumferential cracks in cold-region tunnels It is proved that the internal thermal stress in lining exceeds the tensile strength of concrete, which is the direct cause for circumferential cracks occurring. The laws of thermal stress in lining induced by parameters such as temperature drop, horizontal drag coefficient and length of lining are analyzed. The conclusions are valuable to the design and construction of cold-region tunnels considering the thermal stress.