The microstructure evolution of undercooled austenite to ferrite in a low carbon steel during deformation at 760℃ and strain rates of 1 s-1 and 10 s-1 was investigated. The results show that the true stress-strain curve at 1 s-1 demonstrates two peaks, indicating Deformation Enhanced Ferrite Transformation (DEFT) and ferrite dynamic recystallization involved respectively. More pronounced ferrite refinement is achieved at 1 s-1 because of the restriction against grain growth both in the two aspects of time and space of the new ferrite grains nucleating repeatedly and rapidly chiefly at the front of the phase boundaries between ferrite and austenite. As the strain rate increasing to 10 s-1, the true stress-strain curve demonstrates only one peak indicating DEFT involved mainly because of the acceleration of transformation kinetics. In addition to the phase boundaries above-mentioned, ferrite nucleates in the intragranular of austenite, which weakens the restriction against grain growth somewhat and ferrite grain size become coarsening slightly. Based on the theory of DEFT and ferrite dynamic recystallization, ultra-fine ferrite structure with grain sizes of about (1.98±1.07) um and (2.33?.01) um was formed at strain rates of 1 s-1 and 10 s-1 respectively.