This study develops a micromechanical damage model for two-phase functionally graded materials considering the interfacial debonding of particles and pair-wise interactions between particles. Given an applied mechanical loading, in the particle-matrix zones, the interactions from all other particles over the representative volume element are integrated to calculate the homogenized elastic fields. The progressive damage process is dependent on the applied loading and is represented by the debonding angles which are obtained from the relation between the particle stress and the interfacial strength. In terms of the elastic equivalency, the debonded, isotropic particles are replaced by the perfectly bonded, orthotropic particles. The effective elasticity distribution in the gradation direction is correspondingly solved. Numerical simulations are implemented to illustrate the capability of the proposed model.