This paper presents a stress-modified fracture strain for API X65 steel used for gas pipeline, as a function of stress triaxiality. To determine the stress-modified fracture strain, tension test of bars with four different notch radii, made of API X65 steel, is firstly performed, from which true fracture strains are determined as a function of notch radius. Then detailed elastic-plastic, large strain finite element (FE) analyses are performed to estimate variations of stress triaxiality in the notched bars with load. Combining experimental with FE results provides the true fracture strain as a function of stress triaxiality, which is regarded as a criterion of ductile fracture. Application of the developed stress-modified fracture strain to failure prediction of gas pipes made of API X65 steel with various types of defects is discussed.