The aim of this study is to clarify the role of the microstructure in damage evolution. The influence of the transformation induced plasticity effect on the crack initiation and the impact of the different phases in development of cracks are important factors that control the fracture mechanisms. The fracture mechanisms of multiphase steels have been investigated on the basis of extensive light optical microscopy and scanning electron microscopy investigations. On the micro-scale, two failure modes appear: cleavage and ductile fracture, depending on the stress–strain conditions, the internal cleanness, the volume fraction of the retained austenite and the position of the austenite and the martensite grains. If a martensite or an austenite grain fails inside a bainitic island, the crack develops rapidly leading to cleavage fracture. If the failure starts inside the ferritic matrix due to void initiation at hard phases, the emerged void causes ductile damage to the surrounding ferrite.