Welded joints are sensitive to fatigue failure due to cyclic loading, as well as fatigue crack propagation influenced by the distribution of welding residual stress. In this study, the fatigue crack propagation rates in butt-welded joints for 304 stainless steel sheets were evaluated in the presence of welding residual stresses. The analysis consisted of two separate models: first, a 3D-finite element (FE) model was used to predict the residual stresses due to welding; second, a numerical study was undertaken to predict fatigue crack propagation in the presence and absence of residual stress using the extended finite element method (XFEM). The crack growth model (NASGRO) and available experimental data were applied to verify the simulation results. The XFEM without residual stress effects shows good agreement with the experimental data and the NASGRO model. However, in the presence of residual stress, the simulation results show less agreement with the NASGRO model. The level and the nature of residual stress have significant effects on crack growth. A faster crack propagation rate is recognized due to the effect of tensile residual stress at the crack tip, while a higher resistance to crack growth is developed due to a compressive residual stress field.