In this study, atomized iron powder (Ancorsteel 1000) was mixed with 0.3 and 0.5 wt.% graphite powder. After sintering at 1120 °C, coarse and fine ferrite and martensite (dual phase) microstructures were produced through intercritical annealing heat treatment at different temperatures. Specimens with various martensite volume fraction and size were impact tested. Impact toughness increased with increasing martensite volume fraction and decreasing martensite size. It was also seen that the impact toughness of specimens with 0.3 wt.% graphite was higher than those specimens with 0.5 wt.% graphite. Furthermore, the impact toughness of intercritically annealed specimens with fine ferrite and martensite microstructure was compared with a specimen that was conventionally quenched and tempered after sintering. The results showed that especially for high intercritical annealing temperatures, the impact toughness of intercritically annealed specimens was higher than that of conventionally heat-treated ones. © 2005 Elsevier B.V. All rights reserved.