In 1936 the RAF also decided to investigate the feasibility of the four-engined bomber. The Air Ministry Specification B.12/36 had several requirements. The bomb load was to be a maximum of 14,000 lb (6,350 kg) carried to a range of 2,000 miles (3218 km) or a lesser payload of 8,000 lb (3,629 kg) to 3,000 miles (4,800 km) (incredibly demanding for the era). It had to cruise at 230 or more mph at 15,000 ft (4,600 m) and have three gun turrets (in nose, amidships and rear) for defence. The aircraft should also be able to be used as a troop transport for 24 soldiers, and be able to use catapult assistance for takeoff. The idea was that it would fly troops to far corners of the British Empire and then support them with bombing. To help with this task as well as ease production, it needed to be able to be broken down into parts, for transport by train. Since it could be operating from limited "back country" airfields, it needed to lift off from a 500 ft (150 m) runway and able to clear 50 ft (15 m) trees at the end, a specification most small aircraft would have a problem with today.
Initially left out of those asked to tender designs, Shorts were included because they already had similar designs in hand and they had ample design staff and production facilities. Shorts were producing several four-engined flying boat designs of the required size and created their S.29 by removing the lower deck and boat hull of the S.25 Sunderland. The new S.29 design was largely identical otherwise: the wings and controls were the same, construction was identical and it even retained the slight upward bend at the rear of the fuselage, originally intended to keep the Sunderland's tail clear of sea spray.
In October 1936, the S.29 was low down on the shortlist of designs considered and the Supermarine Type 317 was ordered in prototype form in January 1937. However it was decided that an alternative design to Supermarine was needed for insurance and that Shorts should build it as they had experience with four-engined aircraft. The original design had been criticized when considered and in February 1937 the Air Ministry suggested modifications to the original Short design, including considering the use of the Bristol Hercules engine as an alternative to the Napier Dagger, increasing service ceiling (28,000 ft) and reducing the wingspan. Shorts accepted this large amount of redesign. The project had added importance due to the death of Supermarine's designer causing doubt in the Air Ministry. The S.29 used the Sunderland's 114 ft (35 m) wing and it had to be reduced to less than 100 ft (30 m), the same limit as that imposed on the P.13/36 designs (Handley Page Halifax and Avro Manchester). In order to get the needed lift from a shorter span and excess weight, the redesigned wing was thickened and reshaped. It is often said that the wingspan was limited to 100 ft so the aircraft would fit into existing hangars. "The wing span was limited by the Air Ministry to 100 ft" but the maximum hangar opening was 112 ft (34 m) and the specification required outdoor servicing. The limitation was to force the designer to keep overall weight down.
In June the S.29 was accepted as the second string for the Supermarine 316 and formally ordered in October. After receiving orders for two prototypes and 100 production aircraft to the S.29 design which became the Short Stirling, Shorts built in 1938 a 1/2-scale prototype at its own expense. Powered by four 90hp Pobjoy Niagara III engines, this Short S.31 (also known internally as the M4 - the title on the tailfin) was mostly of wooden construction apart from a semi-monocoque fuselage, and seated two in tandem. In overall silver finish and marked M4, the Short S.31 flew on September 19, 1938, at Rochester, piloted by Shorts' Chief Test Pilot J. Lankester Parker.
The takeoff run was thought to be too long, and fixing this required the angle of the wing to be increased for takeoff, normally meaning the aircraft would be flying nose down while cruising (as in the Armstrong Whitworth Whitley). Short had originally decided on an incidence of 3° giving the best possible cruise performance, but the RAF asked that the incidence be increased to 6.5°, being more concerned with improving take-off performance than the cruising speed. In order to accommodate the RAF request for increased wing incidence a major re-design of the central fuselage would have normally be undertaken, but because of time restraints, Short decided on a "quick fix" by lengthening the main landing gear legs to give a higher ground angle. At the end of 1938, this change was incorporated on the Short S.31 prototype.
The single stage landing gear leg was discarded due to the increased length of the undercarriage rods which proved too long to be retracted into the engine nacelle wheel wells. A two stage undercarriage was built which retracted vertically and then backwards into the nacelle. The undercarriage retraction motors were originally located inside the nacelle, but were later relocated inside the fuselage to allow for manual retraction in the event of motor failure.
Other changes included the installation of four 115 hp (86 kW) Pobjoy Niagara IV radial engines in January 1939. In order to address longitudinal control problems horn-balanced elevators were installed but these were soon replaced by a larger tailplane with conventional elevators in March 1939.