Surface engineering to generate compressive stresses via processes such as shot peening is commonly employed to mitigate fracture or fatigue failures in metallic systems. Localized plastic deformation is used to generate the generally biaxial compressive elastic stresses. This study examined the residual stress conditions and local mechanical performance of medium carbon steel in a quenched and tempered state. Electrolytic hydrogen charging of peened samples led to a permanent reduction in the compressive surface stress while concurrently hardening the surface. Slight changes in elastic modulus when solute hydrogen was present could not explain the resulting change in the measured residual stress; a reduction in X-ray peak breadth suggests that the combined effects of elastic stresses and solute hydrogen caused local dislocation annihilation and re-organization of the dislocation structure in the severe plastically deformed layer, leading to a lower magnitude and shallower depth of compressive residual stress on the peened surface after hydrogen charging.