To improve the service reliability of components prepared by TiC-reinforced steel matrix composite material, tempering treatment was carried out to tailor the microstructure and properties of the composite. The aim of this study was to investigate the microstructure, properties, and dimensional stability of a TiC-reinforced steel matrix composite during tempering and to identify the underlying stabilizing mechanisms. We observed that the metastable retained austenite transformed into martensite and that residual stress released during tempering. The microstructure and properties of the composite reached an optimal state for a tempering time of 10 h. Furthermore, the relative dimensional change, Vickers hardness, thermal strain, and saturation magnetization of the composite were 0.0219%, 960.8 HV, 3.16 × 10−4, and 109.7 emu/g, respectively. Various stabilizing mechanisms, including retained austenite-martensite transformation and residual stress release, were observed during tempering, effectively improving the dimensional stability of TiC-reinforced steel matrix composites.