Existing sites of dissolved rare earth (RE) atoms have not been accurately identified owning to their extremely low solid-solubility in steels, leaving behind the ambiguity of RE-microalloying on microstructure tailoring and performance optimizing for a few decades. Here, RE clusters are directly observed inside ferrite of TRIP steels, causing solute-drag effect on dislocation movement. RE addition can also enhance the solubility of V in austenite, leading to more precipitations of carbides inside austenite. The austenite-ferrite boundaries assisted by these carbides provide strong pinning effect on dislocation motion from ferrite to austenite, thereby forming the unique core-shell structure of dislocations within intragranular austenite. The dislocation shell offers additional diffusion channels for C/Mn partition and restricts volume expansion of austenite cores, hence increasing the thermal stability of intragranular austenite and optimizing the strength-ductility balance of TRIP steels.