In this paper, the effects of the mechanical properties of the martensite phase on the failure mode and ductility of dual phase (DP) steels are investigated using a micromechanics-based finite element method. Actual microstructures of DP sheet steels obtained from scanning electron microscopy are used as representative volume element (RVE) in two-dimensional plane-stress finite element calculations. Failure is predicted as plastic strain localization in the RVE during deformation. The mechanical properties of the ferrite and martensite phases in a commercial DP 980 steel are obtained based on the in-situ X-ray diffraction measurements of a uniaxial tensile test. Computations are then conducted on the RVE in order to investigate the influence of the martensite mechanical properties and volume fraction on the macroscopic behavior and failure mode of DP steels. The computations show that, as the strength and volume fraction of the martensite phase increase, the ultimate tensile strength (UTS) of DP steels increases but the UTS strain and failure strain decrease. These results agree well with the general experimental observations on DP steels. Additionally, shear dominant failure modes usually develop for DP steels with lower martensite strengths, whereas split failure modes typically develop for DP steels with higher martensite strengths.