The factors contributing to strength and ductility of a series of Fe-Al2O3 dispersion hardened alloys are investigated. It is found that the bonding strength between the phases is of particular importance in alloys produced by powder metallurgy techniques, and this aspect of the problem is studied in detail using electron microscopy. The nature of bonding strength is then discussed and a model of diffuse interface postulated in order to account for improvements in the work of adhesion, caused by alloying the matrix with interface active elements. The diffuse-interface bond increases the strain required for the onset of void formation, and in extreme cases fracture occurs within the particles