During operation of nuclear power reactors, irradiated Zircaloy™-4 cladding tubes contain circumferentially oriented hydrides concentrated in a layer near the outer surface of the cladding. This study has investigated the effect of such a hydride layer or "rim" located near the outer surface of the cladding tube on the failure of unirradiated Zircaloy-4 cladding tubes. Utilizing plane-strain ring-stretch tests with the maximum principal stress along the circumferential or hoop direction, we examined the influence of a hydride rim on the failure of Zircaloy-4 cladding at both room temperature and 300°C. Fracture is found to be sensitive to hydride-rim thickness such that cladding tubes with a hydride-rim thickness >140 μm (≈700 wtppm total hydrogen) exhibit brittle behavior, while cladding tubes with a rim thickness <90 μm (≈600 wtppm) remain ductile. The mechanism of failure is identified as strain-induced sequence of microcrack initiation within the hydride rim, linkage of microcracks to form a long (surface) crack, and subsequent failure of the cladding wall due to either a shear instability or ductile crack growth.