In this paper, the authors present an internal state variable (ISV) cap plasticity model to provide a physical representation of inelastic mechanical behaviors of granular materials under pressure and shear conditions. The formulation is dependent on several factors: nonlinear elasticity, yield limit, stress invariants, plastic flow, and ISV hardening laws to represent various mechanical states. Constitutive equations are established based on a modified Drucker–Prager cap plasticity model to describe the mechanical densification process. To avoid potential numerical difficulties, a transition yield surface function is introduced to smooth the intersection between the failure and cap surfaces for different shapes and octahedral profiles of the shear failure yield surface. The ISV model for the test case of a linear-shaped shear failure surface with Mises octahedral profile is implemented into a finite element code. Numerical simulations using a steel metal powder are presented to demonstrate the capabilities of the ISV cap plasticity model to represent densification of a steel powder during compaction. The formulation is general enough to also apply to other powder metals and geomaterials.