A material model is presented for the prediction of the initiation of dynamic recrystallization in two-phase materials in which the second phase does not deform. Initiation is based on the criterion of Poliak and Jonas in which both energy and kinetic conditions are considered. The criterion is generalized for multiaxial stress states, and coupled with elastic-viscoplastic constitutive equations for high-temperature rate-sensitive materials undergoing strain hardening: dynamic recovery and strain softening due to dynamic recrystallization. The model is embodied within a finite-deformation finite-element code. Micromechanical finite-element cells are then developed to model two-phase materials, and the dependence of the initiation of dynamic recrystallization on the second-phase volume fraction, shape and distribution is investigated. Stress-state dependence is also examined. Increasing volume fraction of the second phase is found to lead to considerably enhanced hardening at low strains but, at higher strains, dynamic softening reduces the steady-state flow stress approximately to that of the corresponding single-phase material. The steady-state flow stress is predicted to be largely independent of second-phase volume fraction. This is in agreement with experiments. The model correctly predicts the experimental trend of earlier initiation of dynamic recrystallization with increasing second-phase volume fraction, together with the sites of initiation in two-phase materials. Particle-matrix interfaces can act as preferential sites for initiation but, in a material with a randomly distributed second phase, the initiation is favoured in areas of particle clustering and can occur close to, but not necessarily at, particle-matrix interfaces. It is shown that the model predictions are entirely consistent with Avrami kinetics. For a uniform distribution of second-phase particles in a two-phase material, an Avrami exponent of 3.29 is predicted. For a random distribution, the Avrami exponent is predicted to be 3.01. Particle shape was found to influence the initiation of dynamic recrystallization. In addition, initiation was found to be delayed as the macroscopic-lever stress state changes from one of pure shear to uniaxial stress and to pure hydrostatic pressure.