The effects of soil–structure interaction in yielding systems are evaluated, including both kinematic and inertial interaction. The concepts developed previously for interacting elastic systems are extended to include the non‐linear behavior of the structure. A simple soil–structure system representative of code‐ designed buildings is investigated. The replacement oscillator approach used in practice to account for the elastic interaction effects is adjusted to consider the inelastic interaction effects. This is done by means of a non‐linear replacement oscillator defined by an effective ductility together with the known effective period and damping of the system for the elastic condition. To demonstrate the efficiency of this simplified approach, extensive numerical evaluations are conducted for elastoplastic structures with embedded foundation in a soil layer over elastic bedrock, excited by vertically propagating shear waves. Both strength and displacement demands are computed with and without regard to the effect of foundation flexibility, taking as control motion the great 1985 Michoacan earthquake recorded at a site representative of the soft zone in Mexico City. Results are properly interpreted to show the relative effects of interaction for elastic and yielding systems. Finally, it is demonstrated how to implement this information in the context of code design of buildings. Copyright © 2003 John Wiley & Sons, Ltd.