In this investigation we look at the influence of the local residual stresses caused by Vickers-pyramid indenting on the initiation and early propagation of small cracks from indentations in coarse-grain martensitic steel. The size of these indentations is comparable to the grain size. Specimens with and without a local residual stress field were tested on a rotary bending machine. A focused ion beam and a scanning electron microscope were used to reveal the influence of those stresses on the location of the cracks’ initiation and the mechanism of the small-crack propagation. The existing local residual stresses assist in the initiation of two cracks at a level lower than the fatigue limit. The early small-crack propagation is gradually obstructed by the residual stress-field configuration until the cracks become non-propagating cracks. At levels higher than the fatigue limit, both cracks succeed in breaking through the compressive stressed domain and link together. From that moment the crack begins to behave as a long crack, penetrating outside the indentation into the tensile-stressed domains.