The formation of localized shear zones is important for understanding many local and global processes in geodynamics. We have developed a self-consistent thermal-mechanical model together with a rheology which depends on temperature, strain-rate and grain-size distribution. The grain-size distribution has contributions from both dynamic recrystallization and grain-growth processes, and is governed locally by a nonlinear ordinary differential equation. A one-dimensional model with 104 points is employed to resolve all of the scales involving grain-size and temperature. We found that grain-growth inhibits the development of shear zones, and that there is a delicate interplay between viscous heating and grain-growth process in determining whether narrow fault zones are developed quickly. For realistic parameters of rheology and grain-boundary processes for wet olivine, the magnitude of the rate of grain-growth is crucial to determine whether shear zones are stable or unstable at temperature T≃1000 K or shear stress &sgr;≃100 MPa.¿ 1997 American Geophysical Union