The effects of pockets of retained austenite on the behavior of martensitic steels have been investigated. A dislocation-density based crystalline plasticity and specialized finite-element formulation were used to investigate how f.c.c. austenite pockets interact with b.c.c. martensitic laths. Quasi-static and dynamic analyses were undertaken to investigate how the effects of the orientations of parent austenite grains and different crystallographic interfaces affect shear strain localization, strength, and toughness. It is shown that the orientations of the parent austenite grain have a significant effect on the dominance of specific interfacial slip systems, and this subsequently affects whether the retained austenite has incompatible slip with martensitic laths, for low austenite Euler angles, or compatible slip with martensitic laths, for high values of austenite Euler angles.