Powder metallurgy (PM) nickel steels are often selected because they have high strength, high impact resistance and good abrasion resistance. The microstructure of slowly cooled PM nickel steels typically contains pearlite, bainite, martensite and a fair volume fraction of retained austenite. Since volume diffusion is really low at conventional sintering temperatures [1120-1150uC (<2050-2100uF)], nickel rich areas are usually found where prior admixed nickel particles were located, i.e. at the surface of iron particles and in sintering necks. Therefore, there is a discrepancy between the rather low mechanical properties of austenite and the high strength of PM nickel steel. Hence, the hypotheses that stress induced or strain induced martensite formation takes place during mechanical testing have been investigated. Results show that martensite forms during mechanical testing, and its final volume fraction is proportional to nickel content.