Lithospheric shear localization, as occurs in the formation of tectonic plate boundaries, is often associated with diminished grainsize (e.g., mylonites). Grainsize reduction is typically attributed to dynamic recrystallization; however, models of shear-localization arising from this hypothesis are often based on contradictory assumptions. Here we present a new first-principles grained-continuum theory which accounts for both coarsening and damage-induced grainsize reduction in a monomineralic assemblage undergoing irrecoverable deformation (Ricard and Bercovici, 2008). Damage per se is the generic process for generation of microcracks, defects, dislocations (including recrystallization), subgrains, nucleii and cataclastic breakdown of grains. The theory contains coupled macroscopic continuum mechanical and grain-scale statistical components. The equations involve the evolution of the whole grainsize distribution (probability of a grain of a given size at a given point in space). The resulting equations seem to be too general for a practical use, but can be solved under the assumption that the grainsize distribution remain self similar. We will discuss this assumption, compare our results with the models found in the litterature and confront our findings with experimental results of olivine deformation.