The austenite decomposition behavior in medium-Mn steel was investigated here by combining thermo-mechanical controlled processing (TMCP) and continuous cooling processes. Microstructures were characterized by means of optical microscopy, electron probe micro analyzer, scanning electron microscopy, electron backscattered diffraction, and transmission electron microscopy. Furthermore, the effect of rolling reduction and cooling path on microstructural evolution and mechanical properties were studied. The results indicated that the austenite region was expanded by manganese, and the ferrite, pearlite, and bainite were not nucleated before martensite transformation even when the cooling rate was decreased to 0.07 °C/min. The approach to tailor yield ratio without compromising tensile strength depends on the control of martensite lath morphology and internal dislocation density. The resistance of lattice to shear transformation increases with the increasing strain hardening of prior austenite, which leads to decrease martensite-start (Ms) temperature. The martensite formed at lower transformation temperatures exhibited relatively high dislocation density and refined laths, resulting in high work-hardening capacity during the early stage of plastic deformation. The crack propagation can be effectively deviated or even terminated by high angle grain boundaries (HAGBs) and the nonparallel structures of martensite packets. These studies on the kinetics and thermodynamics of martensitic transformation confirmed the viability of processing continuously cooled medium-Mn steel in the hot rolling production line.