The localization of plastic deformation and fracture in a material with a porous coating is investigated. A dynamic boundary value problem in the plane strain formulation is solved. The numerical simulation is performed by the finite difference method. The composite structure corresponds to the experimentally observed structure and is specified explicitly in the calculation. A procedure for the generation of the initial finite-difference grid has been developed to describe the coating structure with adjustable porosity and geometry of the substrate - coating interface. Constitutive equations for the steel substrate include an elastic-plastic model of an isotropically hardening material. The ceramic coating is described by a brittle fracture model on the basis of the Huber criterion, which accounts for crack nucleation in regions subjected to triaxial tension. It is shown that the specific character of deformation and fracture of the studied composite results from the presence of local tensile regions in the vicinity of pores and along the coating - substrate interface, in both tension and compression of the coated material. The interrelation between inhomogeneous plastic flow in the steel substrate and crack propagation in the coating is studied.