An elasti-plastic material model, with strain-hardening or -softening, and volumetric strains, implemented within a general-purpose finite-element system (SAVFEM™), is shown to reproduce the stress-strain relationships and localized to de-localized (brittle to ductile) changes in strain response that have long been observed in typical laboratory experiments on common porous rocks. Based on that validation of the implementation, SAVFEM™ is then used to create numerical simulations that reproduce the patterns of localized shear zones, and their growth history, that occur in experimental (physical) models of fold-fault systems in layered rocks. These simulations involve a progressive evolution of the mechanical state, illustrating a geometrically dominated type of localization behaviour. Part of the deformation simulated here represents a crestal graben system. Analysis of the evolving mechanical state in the system of simulated faults poses challenges to some longstanding ideas concerning the way that faults operate, suggesting the need for a new fault-process paradigm. © The Geological Society of London 2007.