In metal-ceramic systems the constraint on plastic flow leads to so high stress triaxialities that cavitation instabilities may occur. If the void radius is on the order of magnitude of a characteristic length for the metal, the rate of void growth is reduced, and the possibility of unstable cavity growth is here analyzed for such cases. A finite strain generalization of a higher order strain gradient plasticity theory is applied for a power-law hardening material, and the numerical analyses are carried out for an axisymmetric unit cell containing a spherical void. In the range of high stress triaxiality, where cavitation instabilities are predicted by conventional plasticity theory, such instabilities are also found for the nonlocal theory, but the effects of gradient hardening delay the onset of the instability. Furthermore, in some cases the cavitation stress reaches a maximum and then decays as the void grows to a size well above the characteristic material length.