The Fe-25Cr-1N alloy produced by solution nitriding possesses extremely high yield strength owing to the solid solution strengthening by nitrogen. However, it was found that the steel exhibited an insufficient elongation because of the brittle intergranular fracture caused during the uniform tensile deformation. This is due to the marked stress concentration at grain boundaries, which is derived from the grain coarsening caused during long time solution nitriding and the development of planar dislocation structure characteristic of high nitrogen austenitic steels. The most effective way to reduce the stress concentration at grain boundary during deformation should be grain refinement. In this study, grain refinement was attempted by the two-step heat treatment for the Fe-25Cr-1N(-Mn) alloy, and then the mechanical properties were investigated by means of tensile tests and fatigue tests. The two-step heat treatment resulted in the grain refinement of austenite to 20 microns in diameter. The intergranular fracture was greatly suppressed from 70% (as-solution-nitrided) to 10% (grain-refined) in area fraction by the grain refinement. In addition, elongation was markedly increased with local necking. The yield stress and tensile strength were also increased, and thus, the fatigue limit is also raised by more than 30%.