The traditional method to design coal pillar for lateral roof roadway was established based on the mining-induced strata movement contour which is considered as a straight line, while ignoring the variations of the internal strata deformation law as well as stress distribution characteristics. In order to make up for this deficiency, in this study, evolution of mining-induced stress in the overlying strata was simulated using physical and numerical simulations, and a method to design coal pillar for lateral roof roadway based on mining-induced stress was proposed. The results indicate that the stress of the overlying strata is redistributed during excavation, and the stress distribution can be divided into a stress-relaxation area, a stress-concentration area, and an in situ stress area. The contour line of 1.05 times the in situ stress is used to define the mining-induced stress contour. Stress inside the contour is redistributed while outside the contour the overlying strata are still within the in situ stress area. Mining-induced stress contour presents a concave-upward type from coal seam to the overlying strata that cannot be merged into a straight one due to their different characteristics of movement and deformation. With this in mind, this study proposed a method to design the width of coal pillar for lateral roof roadway according to the mining-induced stress contour. According to mining-induced stress contour, the width of coal pillar for lateral roof roadway of longwall panel 31100 is 160 m, and the maximum deformation of the roadway is 270 mm. The new method can definitely meet engineering demands.