Several factors contribute to the observed bulk mechanical properties enhanced by surface mechanical rolling treatment (SMRT), and it is important to distinguish the influences of each major factor. A commonly used engineering carbon steel, 1045 steel, was chosen for the current study because the material does not have stress-induced phase transformation. A fully reversed strain-controlled gradual decreasing amplitude loading spectrum (ENV) was employed to release the residual stresses induced by SMRT. Fatigue experiments were conducted on the 1045 steel specimens with and without ENV to assess the influences of grain refinement and the residual stress on fatigue. It was found that SMRT refined and recombined the microstructures in the surface layer through deformation and fragmentation of brittle cementite, and extrusion of ductile ferrite between adjacent cementite layers. In the high cycle fatigue regime, both the SMRT induced residual stresses and the refined/recombined microstructures contributed to the enhancement of fatigue strength and fatigue ductility but the gradient microstructure contributed significantly more than do the residual stresses. Unlike stainless steels processed by SMRT, the carbon steel does not display a kink point in the strain-life fatigue curve, and all the crack initiations were found to occur on the specimen surface.