The installation of dense granular columns by various construction techniques can be used to mitigate liquefaction through a combination of densification, increase of lateral stresses, reinforcement, and drainage. The contributing mechanism of shear reinforcement is isolated and explored using nonlinear three-dimensional (3D) finite-element (FE) analysis. FE models representing both dry and saturated conditions were developed to evaluate cases with and without generation and dissipation of excess pore-water pressures. The shear stress and strain distributions between the granular columns and surrounding soil, and the level of shear stress reduction, were investigated for a practical range of treatment geometries, relative stiffness ratios, vertical stresses, and relative densities of the surrounding soil. A set of 10 acceleration time histories were used as input motions. The FE results show that granular columns undergo a shear strain deformation pattern that is noncompatible with the surrounding soil. As such, the achieved reduction in cyclic stress ratios imposed on the treated soil is far less than that predicted by the conventional shear strain compatibility design approach. Reductions in cyclic stress ratios are insensitive to the applied surface pressure, granular column length/diameter ratio (L/D), and relative density of the surrounding soil for the range of area replacement ratio and column-soil shear modulus ratio examined. A modified design equation to estimate the reduction in cyclic stress ratio provided by dense granular columns is shown to provide good agreement with the FE simulation results.