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The microstructure evolution and mechanical properties of air-hardening steel subjected to different austenitizing annealing treatments were investigated in this study and, especially, the precipitation behavior of the steel was analyzed, as well as the strengthening mechanism of the steel was elucidated on the basis of systematic microstructural characterization. Results reveal that a ferrite + martensite dual-phase structure with about 700 MPa tensile strength and 20% elongation can be obtained by austenitizing the experimental steel in the range of 750∼800 °C; while austenitizing between 850 °C and 950 °C results in granular bainite + lath bainite with about 950 MPa tensile strength and 12% elongation. The experimental steel has the highest strength after austenitizing at 900 °C with lots of nano-scale (Ti, Mo, V)C particles distributed in its matrix. Quantitative calculation results illustrate that the main strengthening factors are grain refinement strengthening, dislocation strengthening and precipitation strengthening. In addition, due to the potential interaction effect between different strengthening factors, a modified strengthening model is proposed to describe the strengthening behavior of the air-hardening steel when it is heat-treated in the two-phase region.