This paper deals with the stability analysis of internally damped rotating composite shafts. An Euler–Bernoulli shaft finite element formulation based on Equivalent Single Layer Theory (ESLT), including the hysteretic internal damping of composite material and transverse shear effects, is introduced and then used to evaluate the influence of various parameters: stacking sequences, fiber orientations and bearing properties on natural frequencies, critical speeds, and instability thresholds. The obtained results are compared with those available in the literature using different theories. The agreement in the obtained results show that the developed Euler–Bernoulli finite element based on ESLT including hysteretic internal damping and shear transverse effects can be effectively used for the stability analysis of internally damped rotating composite shafts. Furthermore, the results revealed that rotor stability is sensitive to the laminate parameters and to the properties of the bearings.