Sheathed post-and-beam wooden structures are distinct from light-wood structures. They allow for using sheathing panels that are smaller (0.91 m × 1.82 m) than standard-sized panels (1.22 m × 2.44 m or 2.44 m × 2.44 m). Evidence indicates that nail spacing and panel thickness determine the lateral capacity of the wood frame shear walls. To verify the lateral shear performance of wood frame shear walls with smaller panels, we subjected 13 shear walls, measuring 0.91 m in width and 2.925 m in height, to a low-cycle cyclic loading test with three kinds of nail spacing and three panel thicknesses. A nonlinear numerical simulation analysis of the wall was conducted using ABAQUS finite element (FE) software, where a custom nonlinear spring element was used to simulate the sheathing-frame connection. The results indicate that the hysteretic performance of the walls was mainly determined by the hysteretic performance of the sheathing-frame connection. When same nail specifications were adopted, the stiffness and bearing capacity of the walls were inversely related to the nail spacing and directly related to the panel thickness. The shear wall remained in the elastic stage when the drift was 1/250 rad and ductility coefficients were all greater than 2.5, which satisfied the deformation requirements of residential structures. Based on the test and FE analysis results, the shear strength of the post-and-beam wooden structures with sheathed walls was determined.