This study investigated the effects of deformation-induced martensitic transformation (DIMT) on the stretchability and fracture behavior of thin sheets made from ferrous medium-entropy alloys (MEAs). Analyses of punch load-stroke curves from Erichsen tests revealed that DIMT occurred in the 60 at% Fe MEA, 64 at% Fe MEA, and 304 stainless steel (60Fe, 64Fe, and 304SS alloys, respectively). This DIMT affects necking onset, uniform elongation, and the Erichsen index (EI) under diverse stress conditions. DIMT plays a significant role in strain hardening and mechanical instability during uniaxial tests, enhancing strain hardening through martensite formation and also initiating necking due to non-uniform deformation. Particularly in 64Fe, DIMT-induced early necking resulted in reduced uniform elongation. On the other hand, biaxial Erichsen test results demonstrated further strain hardening due to martensite-induced strain accommodation, leading to enhanced resistance to deformation during biaxial loading. The distinctive shapes of punch load-stroke curves in biaxial tests, compared to stress-strain curves from uniaxial tensile tests, are a result of the interaction between DIMT and stretching directions, as well as its alloy-dependent phase stability. In 60Fe, transformed martensite contributed to strain hardening and delayed necking initiation, while extensive martensite transformation in 64Fe enhanced strain hardening further. This understanding of the complex correlation between DIMT, strain hardening, and mechanical instability holds potential for alloy optimization and developing processing strategies, applicable to automotive manufacturing and structural engineering industries.