Although martensite is recognised as a very strong phase in carbon steels, its initial yielding commences at low stresses and the tensile stress-strain curve shows a smooth, rounded form. Evidence is presented from x-ray diffraction to show that this behaviour is due to the presence of intra-granular stresses that are residues after the shear transformation from austenite to martensite. These internal stresses are reduced in magnitude by plastic deformation and also by tempering. Reduction of internal stress due to plasticity is shown by a decrease in XRD line broadening after deformation. A simple model is presented in which the stress-strain behaviour is controlled by relaxation of the internal stresses almost up to the point of the ultimate tensile strength. It demonstrates that only a very small fraction of the material remaining in a purely elastic state provides a large stabilising effect resisting necking. A corollary of this is that the uniform elongation of martensitic steel actually increases with increase in the strength level. Effects of heat treatment are also reproduced in the model, including the increase in conventional yield stress (Rp0.2) that occurs after low temperature tempering.