Concrete overlays constitute a versatile method to restore and strengthen concrete pavements. Meticulous operations with removal of deteriorated concrete, surface preparation, overlay casting, compaction and curing are of outermost importance for a good and sustainable behaviour but it is also important to understand the phenomena that may cause high stresses and eventual cracking. Differential shrinkage, i.e., the shrinkage difference between the new-cast concrete overlay and the mature base layer concrete, causes restrained stresses in the bonded overlay, tensile stresses that may lead to vertical cracking. They may also lead to local shear stresses at boundaries, stresses that may cause debonding. Differential shrinkage has been studied during more than 60 years, but still there is no final solution that is accepted by the entire research society. This paper discusses the condition that the overlay shrinks more at the top than at the bottom. This non-homogeneous shrinkage causes stresses and stress distributions that differ from the calculated stresses determined for the simple case where the shrinkage is assumed to be constant across the entire overlay thickness or height. Calculations show that the maximum tensile stress in the overlay increases with increased degree of non-linearity of the differential shrinkage. Simultaneously, the tensile stresses are more and more local. The local nature of the tensile stress and the beneficial effect of overlay concrete creep are shown to be the probable reason for the absence of cracking in laboratory tests on composite concrete beams as well as in real cases.