The effect of retained austenite stability on the fatigue performance was studied in bainitic rail steel subjected to different heat treatments, including normalizing at 900 °C and normalizing at 900 °C combined with tempering at 320 °C. The normalized steel had yield strength of 851 MPa, tensile strength of 1131 MPa, uniform elongation 7.0 %, and total elongation 17.5 %. Tempering the steel at 320 °C resulted in similar strength and plasticity compared to the normalized condition. However, the fatigue performance of steel was improved significantly after tempering. The ultimate fatigue stress (endurance limit) after 1 × 107 cycles was 671 MPa, which was 38 MPa greater than the normalized steel. Microstructural analysis revealed similarities between normalized and tempered matrices at crystallographic interfaces and grain boundaries. Synchrotron X-ray radiation indicated that the initial retained austenite content was ∼15.5 % in both normalized and tempered conditions. However, at tensile stress of 800 MPa, the amount of retained austenite transformed in the normalized steel was ∼4 %, which was twice that of the tempered steel. The enhancement of retained austenite stability was an important aspect in improving the fatigue performance. The analysis of interphase spacing showed that the strain in the normalized matrix synchronized with the retained austenite, and the stress was concentrated in the retained austenite, which promoted transformation of retained austenite. The matrix of tempered steel was strained first, which prevented stress concentration in the retained austenite and rendered the retained austenite stable.