One element that is essential to consider in underground mining engineering applications is the possibility of pillar failure, which can result in deadly geological disasters, including earthquakes and surface subsidence. Pillars are commonly present under an inclined state and are significantly dependent upon combined compression and shear loading. However, many scholars regard the pure uniaxial compression strength (UCS) of rock as the main evaluation index of pillar strength, which is inconsistent with the field practice. Hence, the present study developed a novel combined compression and shear test (C-CAST) system, which was applied in the investigative acoustic emission (AE) experiments to characterize the failure mechanism and micro-fracture behavior of granite specimens at different inclination angles. The experimental results presented the exponential decrease of UCS of inclined specimens with increase in the shear stress component. Changes in the inclination angle with a range of 0°–10° produced a splitting-shear failure fracture mode from the initial splitting failure. In comparison, an increase in the inclination angle from 10° to 20° produced a single shear failure fracture mode from the initial combined splitting-shear failure. The specimens exhibited nonlinearly reduced microcrack initiation (CI) and damage (CD) thresholds following an increase in the inclination angle, suggesting the dependence of the microcrack initiation and propagation on the shear stress component. The ratio of CI and CD thresholds to inclined UCS varies within a certain range, indicating that the ratio may be an inherent property of granite specimens and is not affected by external load conditions. Additionally, the rock fracture behavior was largely dependent upon the mechanism of shear stress component, as validated by the microcrack initiation and growth. Finally, a modified empirical formula for pillar strength is proposed to investigate the actual strength of inclined pillar. Results of a case study show that the modified formula can be better used to evaluate the stability of inclined pillars.