Axial load is considered as a parameter in the New Zealand concrete design standard (NZS3101:2006) for prevention of out-of-plane instability in structural walls, and the minimum thickness requirement to safeguard against this mode of failure is applicable for walls with axial load ratios greater than 0.05. This study investigates the effect of axial load on development of out-of-plane instability in rectangular walls. For this purpose, the in-plane and out-of-plane responses of two rectangular wall specimens designed according to NZS3101:2006 are presented. The specimens were subjected to different axial load ratios in addition to the lateral cyclic load and the corresponding bending moment, representing a shear-span ratio of 3.0, and their out-of-plane displacement was measured using the string potentiometers mounted along the height of the boundary zones. The effects of axial load on initiation and progression of out-of-plane displacement as well as on variation of strain gradients along the length and height of the specimens and at different stages of the applied cyclic loading are studied. The point in the drift history corresponding to the maximum out-of plane displacement proved to depend on the level of axial load. With higher axial loads, this point would shift towards the beginning of reloading in the opposite direction and the out-of-plane displacement could recover faster due to faster development of crack closure. The axial load affects the level of strain developed in the longitudinal reinforcement at different stages of a loading cycle. Although its effect on the maximum tensile and compressive strains is negligible, the strain history between these two extremes is significantly controlled by the variation of this parameter. Therefore, the axial load can prevent development of high residual strains in the reinforcement and contribute to crack closure to happen before any out-of-plane deformation can initiate. However, if this crack closure does not happen on time, the axial load can trigger faster development of out-of-plane deformation by increasing the P-delta effect.