An alloy containing two or more phases with significantly distinct properties may produce a unique combination of high strength and ductility. Fe–Ni alloys processed through the powder metallurgy route form dual-phase structures containing both body- and face-centered cubic phases. The detailed atomic scale microstructural evolution and deformation mechanism of such alloys have not been performed as dual-phase structure materials generate more complex deformation mechanisms than single-phase structure materials. The present study utilizes molecular dynamics simulation to compute the mechanical properties and investigate the deformation mechanism in a dual-phase Fe–Ni alloy with a variable phase fraction of body-centered cubic during a uniaxial tensile test. The results show that phase fraction affects the mechanical properties as well as the deformation behavior. Shear strain distribution and dislocation density provided an explanation for the change in the average flow stress and strengthening mechanism of the dual-phase Fe–Ni alloys. Additionally, the influence of temperature on deformation behavior is investigated. The deformation mechanism at higher temperatures is found to be dislocation slip and grain boundary sliding.