A detailed analysis is performed of the plastic deformation in a metal substrate fretted by a flat-bottomed circular peg under steady normal load and cyclic tangential load. The substrate is coated with a thin layer of soft metal. Two limiting asymptotic problems are identified which characterize small scale yielding behavior in the substrate in the vicinity of the corners of the peg. Deformation within the plastic zone is characterized, including regions of elastic shakedown, steady reversed cyclic plastic straining, and strain ratchetting. Implications for nucleation of fretting cracks are discussed.