The deformation characteristics of the metal matrix composites Ag/Ni and Al/Al2O3 are studied at microstructural level by a scanning electron microscopebased grating method and finite element (FE) simulation. The measured strain was found to localize in narrow bands in the ductile matrix of both composites. In the case of the Al/Al2O3 composite, the bands are preferentially initiated in Al regions adjacent to the interface of large Al2O3 particles, leading to local strain maxima. The band positions found in the Ag/Ni composite are also affected by the less deformable Ni phase, but strain localization first occurs by sliding of single Ag grains sometimes located away from the Ni phase. Using a FE model of real phase geometry and measured border displacements as boundary conditions, the simulation agrees reasonably with the experiment. The differences in the case of the Al/Al2O3 composite are due to particle cracks and voids at the particle/matrix interface. This effect was found in the experiment but not considered in modelling. For the Ag/Ni composite the band positions agree fairly well. However, the level and gradient of strain is clearly different as the crystallographic orientation of the Ag grains was not accounted for in modelling.