Wheat residue including straw, chaff and dry leaves may be used as livestock feed, composting for mushroom production, and wood products development. Residue left behind after combine harvesting is either recovered by labor and machinery or burned due to high collection costs which has resulted in environmental pollution. In this research some physical and rheological properties of wheat residue were determined to be applied in design and development of a shredding and baling unit attachable to a grain combine harvester. The residue collected from behind a combine harvester was separated in four sample categories of chaff, whole straw, mixture of straw and chaff, and shredded straw (whole straw shredded by a shredder) and chaff. External coefficient of friction of samples on three surface materials (wood, sheet metal and rubber) under three vertical loads with three replications was determined using a completely randomized design. Results indicated that category of residue had a significant effect ( P 0.05) and type of surface material and vertical loading had a highly significant effect ( P 0.01) on external coefficient of friction. Confined compression test at three levels of strain (35, 45 and 65 percent of initial length) with three replications with a completely randomized design was performed. Results of the compression test indicated that with increase in rate of compression (strain), final pressure (stress) increases. The highest stress level was observed for strain level of 65% initial length for shredded straw. Stress relaxation data showed that changes in stress reaches a constant level after a limited time. A reduction of 10 to 25% in stress happened in 200 seconds time. Data obtained from physical and rheological property tests were used to design the shredding and baling units of the machine. Engineering practices including machine design standards and proper factor of safety were adopted and technical drawings of various parts were developed and the machine units were fabricated. The machine was laboratory evaluated on a test rig at the Department of Agricultural Machinery Engineering, Isfahan University of Technology. The test were run as each material category was placed on the test rig’s belt and delivered to the shredding and baling units. The shredding unit also acted as a feeding mechanism sending the shredded material into the baling chamber. Preliminary experiments with the machine showed satisfactory results, however, some revisions and modifications in selecting a more suitable feeding mechanism should be done.