We performed numerical simulations on the microdynamics of ice with air inclusions as a second phase. Our aim was to investigate the rheological effects of air inclusions and explain the onset of dynamic recrystallization in the permeable firn. The simulations employ a full-field theory crystal plasticity code coupled to codes simulating dynamic recrystallization processes and predict time-resolved microstructure evolution in terms of lattice orientations, strain distribution, grain sizes and grain-boundary network. Results show heterogeneous deformation throughout the simulations and indicate the importance of strain localization controlled by air inclusions. This strain localization gives rise to locally increased energies that drive dynamic recrystallization and induce heterogeneous microstructures that are coherent with natural firn microstructures from EPICA Dronning Maud Land ice coring site in Antarctica. We conclude that although overall strains and stresses in firn are low, strain localization associated with locally increased strain energies can explain the occurrence of dynamic recrystallization.