The development of delta-ferrite recovery substructures in low-carbon steels has been observed in-situ utilizing laser scanning confocal microscopy (LSCM). Well-developed sub-boundaries with interfacial energies much smaller than that of delta-ferrite grain boundaries formed following transformation from austenite to delta-ferrite on heating. It is proposed that transformation stresses associated with the austenite to delta-ferrite phase transformation generate dislocations that subsequently recover into sub-boundaries by a process of polygonization. Experimental evidence in support of this proposal was found in a ferritic stainless steel. Thermal cycling through the high-temperature delta-ferrite/austenite/delta-ferrite phase transformation leads to the development of a well-defined recovery substructure, which, in turn, modifies the low-temperature austenite decomposition product from Widmanstätten to polygonal ferrite, with a commensurate change in hardness.