In the automotive sector, dual phase (DP) steel grades have been increasingly used for various car body parts due to their good combination of strength and formability. To control mechanical and fracture characteristics of the DP steels, effects of martensitic phase fraction, morphology, and phase distribution must be understood. In this work, DP steel sheets with different martensitic phase fractions and ferritic grain sizes were produced through the intercritical annealing process. Likewise, FE simulations of 2D representative volume elements (RVEs) based on real micrograph were performed for all generated DP microstructures. Flow behaviors of single individual phases in the DP steels were described by a dislocation theory and local chemical compositions. Calculated stress–strain responses were verified with experimental results from tensile tests. Subsequently, stretch‐forming tests under different states of stress using the Nakajima samples were carried out for the examined DP steels. Micromechanics RVE models were then applied to predict failure occurrences in the DP microstructures by considering plastic strain instability. Influences of morphologies and properties of constituent phases on localization due to incompatible deformation between martensite and ferrite were discussed with regard to governing stress states.