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In this study, cracks or scabs formed during hot rolling of Bi-S-based free-machining steel wire rods were analyzed, and their formation mechanisms were clarified in relation with microstructure. Detailed microstructural analyses of large-diameter rods showed that the rod having low carbon content was cracked, whereas the rod having higher carbon content was not, because oxides formed during hot rolling were penetrated into the relatively soft surface, thereby leading to the surface cracking. While the crack-free, large-diameter rod containing high carbon content was subsequently rolled to make a small-diameter rod, a few scabs of 1 to 2 mm in size were formed on the surface as some protrusions were folded during hot rolling. Thus, in order to prevent the cracking or scab formation in wire rods, (1) the increase in hot-rolling temperature for homogeneous rolling of rods, (2) the minimization of temperature drop of rolled rods upon descaling treatment, and (3) the increase of rolling passes and the decrease of reduction ratio of each pass were suggested. Using these methods, crack-or scab-free wire rods could be successfully fabricated.