In an attempt to improve mechanical properties of powder metallurgical (P/M) preforms of ferrite–pearlite steel, a ferrite–martensite dual-phase P/M steel was produced through intercritical annealing. In the present paper, the densification characteristics and formability of sintered preforms of dual-phase P/M steel and its comparison with preforms of ferrite–pearlite P/M steel are presented. The elemental powders of required composition were thoroughly mixed and steel compacts with different preform densities were produced by applying recommended pressures. The sintered preform consisted of ferrite–pearlite microstructure whereas intercritically annealed preform contained fine martensite distributed in ferrite matrix. The variation in porosity for different preform densities was approximately in the range of 5 %–28 % for both the steels. Stage wise upsetting was performed to obtain the densification curves, and compression tests were carried out to estimate the apparent strength coefficient (Ka) and apparent strain-hardening exponent (na), to generate the forming limit diagram (FLD) for both the steels. With increasing mean preform density, the Ka values were increasing, whereas the na values were decreasing for both sintered and dual-phase steels. In FLD, the transition of Ka and na values was at critical transition density (CTD) of 6.43 g/cm3 and 6.15 g/cm3 for sintered and dual-phase steel, respectively. Thus, an increase of 4.5 % of safe zone limit in FLD was observed in dual-phase steel, which facilitates the selection of lower preform density for forming process. Interestingly, the contiguity ratio of the martensite phase was increasing with increase in the mean preform density, which changes significantly after CTD of 6.15 g/cm3 in dual-phase P/M steel.