The 2016 moment magnitude 7.8 Kaikoura, New Zealand, earthquake occurred at the southern end of the Hikurangi subduction zone where the upper plate above the shallow megathrust is exposed sub-aerially. As a result, the substantial co-seismic deformation in the upper plate above the megathrust rupture was observed geologically and geodetically. We explore the relationship between this surface faulting and the subduction megathrust rupture and find that the greatest upper plate fault slip occurred coincident (in time and location) with the megathrust rupture. Models of Coulomb stress change demonstrate that these surface faults become positively loaded as the upper plate rebounds during the megathrust event, favoring fault slip. In addition, during the megathrust rupture these faults terminate against an uncoupled subduction plate interface. We simulate the effects of decoupling at the base of these faults and find that very large fault slip is an expected consequence of this decoupling, allowing near-complete strain release. In contrast, typical strike-slip faults, pinned at their base, would have lower amounts of fault slip. These two conditions—increased Coulomb stress and basal decoupling—combine to produce the extreme co-seismic upper plate faulting observed above the shallow Kaikoura megathrust earthquake. Similar conditions occur in other global subduction zones, but in most subduction zones the region above the coupled megathrust is underwater and poorly observed. Our analysis of the Kaikoura earthquake indicates a need to reevaluate patterns of strain accumulation and release in these regions, rather than assuming simple models of elastic rebound.