An incremental theory is developed to describe the elastic-plastic behavior and damage behavior of particulate-reinforced composites, based on Eshelby's (1957) solution of an ellipsoidal inclusion and Mori and Tanaka's (1973) concept of average stress/strain for a finite concentration of particles. In the composites containing hard spherical particles in a ductile matrix, debonding of the particle-matrix interface is a significant damage process, as the accumulation of the debonding damage affects the deformation and strength of the composites. The debonding damage is assumed to be controlled by the stress of the particle and the statistical behavior of the particle-matrix interfacial strength. During debonding, the stress of the particle is released and the site of the particle is regarded as a void, resulting in a void concentration increasing with deformation. The theory describes not only the reinforcing effect due to the intact particles but also the weakening effect due to the damaged particles. Analysis of the stress-strain response under uniaxial tension has been carried out on the particulate-reinforced composite based on the present theory. The influence of the damage on the stress-strain relation of the composite is very drastic and depends on the statistical properties of the particle-matrix interfacial strength.