The finite element formulation for deformation of porous materials including compressibility of the material and the effect of temperature was developed and applied to the problem of plane-strain compression of sintered iron-powder bars. The formulation employed a phenomenological approach for the deformation analysis. A simple linear relationship between the thermal conductivities of the powdered metal and the base metal was derived and used as a first approximation for temperature calculations. The computed results are compared with experimental values in terms of macroscopic densification and forging pressures. Also, the predicted relative density distribution was compared with the experimental hardness distribution. The results show that the finite element analysis simulates the compression process well and predicts the sites of fracture during deformation.