The role of the presence of a non-deformable second phase in a soft matrix on the plasticity induced crack closure behavior of a growing fatigue crack is analyzed as a boundary value problem using elastic—plastic finite element techniques. Three cases of plasticity induced crack closure are simulated under plane-strain conditions: (a) response of the matrix; (b) response in the presence of the second phase; and (c) effects of interface failure between the matrix and the second phase as the fatigue crack crosses the second phase. Results indicate that the presence of the second phase considerably affects the stress and strain fields of a growing fatigue crack at both maximum and minimum load levels, and hence the crack opening and closure behavior. The interface bonding characteristics between the matrix and the second phase play an important role in this variation. Crack deflection and increased surface roughness are inevitable in two phase materials due to the localization of the plastic flow between the second phase. Therefore, it appears that the parameters of the second phase are important factors in the observed effects of plasticity induced crack closure.