Abstract: Two mechanisms-deformation enhanced transformation and dynamic recrystallization of ferrite are involved during deformation of undercooled austenite in a low carbon steel, leading to effective ferrite grain refinement. In comparison with isothermal transformation, deformation significantly accelerates austenite to ferrite transformation, leading to a very high nucleation rate. Deformation enhanced transformation is a nucleation dominant process. The results of EBSD and TEM indicate that ferrite dynamic recrystallization also plays an important role on grain refinement as well as deformation enhanced transformation. The misorientation of sub-grain boundaries is assumed to increase by further straining, accompanied by grain rotation, finally leading to the recrystallized small ferrite grains. Study on the effect of strain rate on microstructure homogeneity indicates that microstructure tends to be distributed in a laminar manner at lower strain rate.