This paper describes an improved data reduction scheme for the deep-hole method of residual stress measurement. The deep-hole method uses the changes in diameter of a reference hole, drilled through the thickness of a component, to determine residual stress. The diameter changes result from the removal of a cylindrical core from the component, where the core is larger than and concentric with the reference hole. The new data reduction seeks to determine the unknown eigenstrain distribution that gives rise to the residual stress state and to the reference hole deformations; once the eigenstrain distribution is found, it is input to an elastic finite element analysis to provide the residual stress distribution in the original component. The new data reduction relies on expressing the unknown eigenstrain field in a polynomial basis, and finding the unknown basis function amplitudes from the measured reference hole diameter changes. The new data reduction is compared with the current technique, and it is shown that the proposed scheme offers several advantages to the current method of data reduction