We investigate the effective viscoelastic performance of particle-reinforced composite materials whose particulate phase undergoes a material instability resulting in temporarily non-positive-definite elastic moduli. Recent experiments have shown that phase transitions in geometrically-constrained composite phases (such as in particles embedded in a stiff matrix) can lead to stable non-positive-definite elastic moduli, and they hinted at strong damping increases that can be achieved from such metastable composite phases. All previous theoretical efforts to explain such phenomena have used simplistic one-dimensional models or they were based on composite bounds and specific two-phase solids. Here, we study particle–matrix composites with periodic randomized particle dispersion. A finite element discretization is used in combination with a sophisticated nonlinear solver in order to perform the numerous calculations in a feasible amount of computing time. Our computational analysis shows that stable non-positive-definite inclusion moduli can indeed lead to extreme damping increases (i.e. greatly exceeding the intrinsic damping of each composite phase) and that such extreme damping arises from a shift in microstructural mechanisms.