Micro-indentation has been widely used to evaluate the mechanical properties of materials. It has also been considered to be an important measure in the study of machinability of difficult-to-machine materials such as metal matrix composites (MMCs). Because of the complexity of deformation of an MMC and the interaction in the vicinity of contact zone between the indenter and work material, an analytical or experimental method is unable to predict the detailed deformation process. The present paper uses the finite element method to investigate the behavior of MMCs subjected to micro-indentation by a spherical indenter including the development of stress and strain fields in the MMCs during loading/unloading. Particle fracture, debonding and displacement, and inhomogeneous deformation of matrix material were explored and compared with the experimental results reported in the literature. The analysis also provides an insight for understanding the formation of residual stresses in machined MMC components.