Dual phase microstructures were produced in a low carbon steel, in which the martensite volume fraction was kept constant at two levels, of 18 and 25%, while the epitaxial ferrite content was varied independently. The microstructures were produced with two dispersions of martensite, a relatively coarse dispersion by intercritical annealing of a ferrite/pearlite starting microstructure and a finer dispersion from an initial martensitic microstructure. Bauschinger tests were conducted using prestrains in both tension and compression of 0.4, 1, and 2.2%. Prestrain direction had no measurable effect on plastic flow behaviour after strain reversal. Mean back stresses increased with increasing strain and martensite content, and were higher for the finer martensite dispersion. They decreased significantly with increasing epitaxial ferrite content in the case of the finer dispersion, but less significantly in the coarser dispersion. These effects of microstructure are discussed in terms of stress transfer to martensite, work hardening, and tensile properties. It is concluded that about half of the mean back stress developed during early plastic deformation was generated by stress transfer to the martensite, the remainder arising from strain hardening of the matrix. A small permanent softening in the Bauschinger test resulted from a reduction of effective stress in the ferrite matrix when the strain path was reversed.