This paper investigates the relationship between the microstructure and the work hardening behavior of a dual-phase (DP) steel. Various DP microstructures were systematically produced by application of different pre-IC annealing heat treatments as well as changing the IC annealing temperature. It was found that various austenite nucleation sites such as grain boundaries, prior pearlite colonies, martensite particles and cementite particles, have different nucleation and growth effectiveness which significantly influences the microstructure after IC annealing. Following a quantitative analysis of all microstructures, the effect of microstructural parameters including martensite particle size, volume fraction as well as their spatial distribution and morphology, on the mechanical behavior of DP steels is examined by considering true work hardening rate, instantaneous work hardening rate and the dislocation annihilation factor from the Kocks–Mecking analysis. These analyses reveal that at constant ratios of volume fraction to size of martensite particles, there are significant differences in all the three work hardening parameters. It is proposed that these observations are due to the effects of morphology and spatial distribution of martensite particles. Furthermore, it was shown that the contribution of martensite particles to work hardening behavior, via geometrically necessary dislocations, is only significant at the early stages of deformation.