A new method is proposed for evaluation of local fields and overall properties of composite materials subjected to incremental thermomechanical loads and to transformation strains in the phases. The composite aggregate may consist of many perfectly bonded inelastic phases of arbitrary geometry and elastic material symmetry. In principle, any inviscid or time-dependent inelastic constitutive relation that complies with the additive decomposition of total strains can be admitted in the analysis. The governing system of equations is derived from the representation of local stress and strain fields by novel transformation influence functions and concentration factor tensors, as discussed in the preceding paper by G. J. Dvorak and Y. Benveniste. The concentration factors depend on local and overall thermoelastic moduli, and can be evaluated with a selected micromechanical model. Applications to elastic-plastic, viscoelastic, and viscoplastic systems are discussed. The new approach is contrasted with some presently accepted procedures based on the self-consistent and Mori—Tanaka approximations, which are shown to violate exact relations between local and overall inelastic strains.