The ASTM D5764 standard, Standard Test Method for Evaluating Dowel-Bearing Strength of Wood and Wood-Based Products, for testing dowel connections provides a procedure for measuring the dowel bearing strength of wood and wood-based products. Laminated veneer bamboo (LVB) is a new building product that is employed in similar sizes and applications as dimensional lumber. Being new, more research is needed to understand the key factors and fundamental failure mechanisms that occur in LVB dowel connections to help ensure safe standards for further LVB product adoption and design. This study develops three-dimensional bilinear finite element models for half- and full-hole specimens in accordance with ASTM D5764 when loaded in compression parallel to the grain. The models simulate LVB fracture initiation due to shear stresses in the dowel joint by incorporating frictional stresses in the contact region between a steel bolt and LVB. The model also predicts displacement at failure, which is validated through comparison with experimental results: the material fails at 1 and 1.18 mm displacement loading parallel to the grain for half- and full-hole specimens, respectively. It is found that, despite the higher load-bearing capacity (strength) of the half-hole specimen, both specimens fail at approximately the same displacement because of in-plane shear stresses. This article clarifies the complex interactive state of in-plane shear, tension perpendicular to the grain, and compression parallel-to-grain stresses using the Tsai–Wu failure criterion in the critical zone beneath the bolt hole for half- and full-hole specimens. These findings suggest that care should be taken to select a test method that captures the performance of LVB dowel joints because of different failure mechanisms that occur for full- and half-hole specimens.