Although the mechanism of cracking of distillate fractions is well-known, the reactions that underlay conversion of the residue fractions of petroleum and bitumen are not well defined. Despite the difficulties in analyzing residue fractions in detail, the chemistry of these materials must follow the same elementary reactions as distillates. This paper presents a consistent mechanism for cracking of residues based on the known chemistry of free-radical chain reactions and model compounds. The roles of hydrogen, donor solvents, and added catalysts are then interpreted in this context. The formation of olefin groups from cracking of aliphatic groups gives the potential for addition reactions in the liquid phase. Removal of olefin groups, by reactions with donor solvents or hydrogenation, controls addition reactions and thereby suppresses coke formation. This mechanism suggests that innovative methods to remove or react olefinic groups may allow higher conversion of residues to desirable liquid products.