This study analyses the effect of martensite grain size and its volume fraction in dual-phase (DP) steel on (1) the formability limit, (2) average global behavior under different loading conditions, and (3) damage initiation. The virtual RVEs (Representative Volume Elements) were constructed using DREAM.3D software with a variation of microstructural attributes. The numerical simulations were carried out using DAMASK, which evaluates the polycrystalline material point behavior and solves versatile constitutive equations using a spectral solver. The simulations were post-processed to obtain global and local stress, strain, and damage evolution in constructed RVEs. The global results were processed to obtain FLDs according to Keeler-Brazier (K-B) and Marciniak and Kuczynski (M-K) criteria. In this work, the capability of microstructure-based numerical simulations to analyze the FLDs has been established successfully. From Forming Limit Diagrams (FLDs), it was observed that formability changes by changing the strain hardening coefficients (n-values), the martensite fraction, and martensite grain sizes of DP steels. The improved formability was observed with lower martensite fraction, i.e., 17%, decreased martensite grain size, i.e., 2.6 µm, and higher strain hardening coefficient. The M-K approach shows the better capability to predict the formability by various loading conditions and clarifies the necking marginal zone of FLD. The damage propagation is also strongly affected by the loading conditions. The current study would be a good guide for designers during the manufacturing and selecting of appropriate DP steels based on the service loading conditions.