There is much interest recently in the possibility of combining two strengthening effects, namely the reduction of grain size (Hall-Fetch effect) and the transformation-induced plasticity effect (strengthening due to a martensitic transformation). The present work is concerned with the analysis of the combination of these two effects using a discrete dislocation-transformation model. The transformation-induced plasticity mechanism is studied for aggregates of grains of ferrite and austenite of different sizes. The discrete model allows to simulate the behavior at sub-grain length scales, capturing the complex interaction between pile-ups at grain boundaries and the evolution of the microstructure due to transformation. The simulations indicate that, as the average grain size decreases, the relative strengthening due to the formation of martensite is significantly reduced and that the overall strengthening is mostly due to a Hall-Petch effect. This finding suggests that strengthening by the transformation-induced plasticity mechanism is ineffective in the presence of fine-grained micro-structures. (C) 2010 Elsevier Ltd. All rights reserved.