Failure criterion is a parameter to represent the resistance to failure of locally wall thinned pipe, and it depends on material characteristics, defect geometry, applied loading type, and failure mode. Therefore, accurate prediction of integrity of wall thinned pipe requires a failure criterion adequately reflected the characteristics of defect shape and loading in the piping system. In the present study, the finite element analysis was performed and the results were compared with those of pipe experiment to develop a sound criterion for failure of internally wall thinned pipe subjected to combined pressure and bending loads. By comparing the predictions of failure to actual failure load and displacement, an appropriate criterion was investigated. From this investigation, it is concluded that true ultimate stress criterion is the most accurate to predict failure of wall thinned pipe under combined loads, but it is not conservative under some conditions. Engineering ultimate stress estimates the failure load and displacement reasonably for al conditions, although the predictions are less accurate compared with the results predicted by true ultimate stress criterion.