Standard heat treatment of martensitic stainless steel consists of quenching and tempering. However, this results in high strength and hardness, while Charpy impact toughness shows lower values and a large deviation in its values. Therefore, a modified heat treatment of 0.1C-13Cr-3Ni martensitic stainless steel (PK993/1CH13N3) with intercritical annealing between Ac1 and Ac3 was introduced before tempering to study its effect on the microstructure and mechanical properties (yield strength, tensile strength, hardness and Charpy impact toughness). The temperatures of intercritical annealing were 740, 760, 780 and 800 °C. ThermoCalc was used for thermodynamic calculations. Microstructure characterization was performed on an optical and scanning electron microscope, while XRD was used for the determination of retained austenite. Results show that intercritical annealing improves impact toughness and lowers deviation of its values. This can be attributed to the dissolution of the thin carbide film along prior austenite grain boundaries and prevention of its re-occurrence during tempering. On the other hand, lower carbon concentration in martensite that was quenching from the intercritical region resulted in lower strength and hardness. Intercritical annealing refines the martensitic microstructure creating a lamellar morphology.