Abstract Wire-Arc Directed Energy Deposition (DED) offers promise for large-scale metal component production, yet challenges persist in achieving a consistent microstructure and mechanical properties. This paper investigates the effect of machining-induced deformation and grain refinement on microstructure evolution in mild steel structures printed using Hybrid Wire-Arc Directed Energy Deposition (DED), which integrates interlayer machining steps into the Wire-Arc DED process. The study demonstrates that machining with radiused-edge cutting tools induces fragmentation of ferritic/bainitic grains, leading to dispersed and refined grain colonies, that, when subjected to reheating and remelting cycles during subsequent layer depositions, lead to a more refined overall microstructure compared to the Wire-Arc DED process. Comparative analyses revealed a statistically significant 19.5% mean reduction in grain size and 8.5% increment in microhardness of the resulting Hybrid Wire-Arc DED structure. The work points to interlayer machining as a promising strategy for in-situ enhancement of the microstructure and mechanical properties in DED processes.