Pre-alloyed ferritic powders were milled for 10h in the air atmosphere to introduce O atoms into the steel matrix. Then the milled powders which contained dissolved O were used to fabricate ferritic steels by hot processing. The precipitation of oxide, microstructural evolution and tensile properties of ferritic steels were studied. Results show that about 1.4wt.% of oxygen was introduced into powders, and the powder surface has a higher O content (about 2–4wt.%) than the inner region (about 1wt.%). During hot processing Cr2O3 and Y2TiO5 were precipitated as the main second-phases. Surface regions of powders in which Cr2O3 largely precipitated were elongated, cracked then gathered, and dispersed in the steel matrix along the hot working direction. Tensile results show that the ultimate tensile strength of as-prepared steel in room temperature was 1601MPa and was still high (1335MPa) at 550°C. The excellent tensile strength under 550°C can be ascribed to the reinforcement of high content of oxide particles in the matrix. The tensile strength suffered a great reduction at temperatures between 550°C and 650°C, but it decreased slower at higher tensile temperatures.