In this paper, the stiffness and the mass matrices for the in-plane motion of a thin circular beam element are derived respectively from the strain energy and the kinetic energy by using the natural shape functions of the exact in-plane displacements which are obtained from an integration of the differential equations of a thin circular beam element in static equilibrium. The matrices are formulated in the local polar coordinate system and in the global Cartesian coordinate system with the effects of shear deformation and rotary inertia. Some numerical examples are performed to verify the element formulation and its analysis capability. The comparison of the FEM results with the theoretical ones shows that the element can describe quite efficiently and accurately the in-plane motion of thin circular beams. The stiffness and the mass matrices with respect to the coefficient vector of shape functions are presented in appendix to be utilized directly in applications without any numerical integration for their formulation.