A method drawing from variational method is presented for the purpose of investigating the behavior of inclusions and inhomogeneities embedded in composite materials. The extended Hamilton’s principle is applied to solve many problems pertaining to composite materials such as constitutive equations, fracture mechanics, dislocation theory, overall elastic moduli, work hardening and sliding inclusions. Especially, elastic fields of sliding inclusions and workhardening rate of composite materials are presented in closed forms. For sliding inclusion problems, the sliding is modeled by adding the Somigliana dislocations along a matrix-inclusion interface. Exact formula are exploited for both Burgers vector and the disturbances in stress and strain due to sliding. The resulting expressions are obtained by utilizing the principle of minimum strain energy. Finally, explicit expressions are obtained for work-hardening rate of composite materials. It is verified that the work-hardening rate and yielding stress are independent on the size of inclusions but are dependent on the shape and the volume fraction of inclusions.