Incremental forming of hole-flanges in sheet metal parts is an emerging process with a high potential economic payoff for rapid prototyping and for small quantity production. However, as with all new sheet metal forming processes, there is need for examining its deformation mechanics and describing the physics behind the occurrence of failure. How metal fails, how pre-cut holes influence strain and stress in single point incremental forming, and how these subjects can be brought together in order to understand the overall formability of hole-flanging by multi-stage incremental forming are still not well understood. However, they are of great importance for improving the performance and industrial applicability of the process. This paper attempts to provide a new level of understanding for the process by combining circle grid analysis and independent characterization of the mechanical properties and formability limits of the material with the fabrication of conical and cylindrical hole-flanges. Experimental observations, measured strain paths and material formability limits by necking and fracture allow concluding that hole-flanging by incremental forming gives rise to a new mode of deformation, not found in conventional incremental forming of sheet metal blanks without pre-cut holes, and to failure by fracture without previous localized necking. © 2012 Elsevier Ltd. All rights reserved.