The dynamical analysis of a rotating thin-walled composite shaft with internal damping is carried out analytically. The equations of motion are derived using the thin-walled composite beam theory and the principle of virtual work. The internal damping of shafts is introduced by adopting the multiscale damping analysis method. Galerkin’s method is used to discretize and solve the governing equations. Numerical study shows the effect of design parameters on the natural frequencies, critical rotating speeds, and instability thresholds of shafts.