This research work aims to characterize and model the failure initiation in bainite-aided dual-phase (DP) steel. Combined electron backscatter diffraction (EBSD) and electron probe microanalysis (EPMA) measurements were applied to quantify the constituents (ferrite, martensite, and bainite) in the microstructure. Mini tensile test with digital image correlation (DIC) analysis was carried out and linked to local scanning electron microscopy (SEM) analysis to identify macroscopic failure initiation strain values. SEM measurements showed that the crack initiation occurs in martensite islands. A microstructure-based approach by means of representative volume elements (RVE) modeling combined with extended finite element method (XFEM) was utilized to model martensite cracking on mesoscale. The identified parameters were validated by comparing the predictions with the experimental results.