Railway wheels in service experience rolling contact fatigue loading, but also need to resist frictional heating on braking, yielding temperatures up to 500 °C. The combination of mechanical and thermal loads leads to changes in the mechanical properties of the material. The focus of this study is to investigate the effect of annealing on local microstructure and residual stresses in railway wheel pearlitic steel (medium carbon steels, ~0.55 wt.% C) using synchroton X-ray Laue micro-diffraction. It is found that the local residual stress releases to a large extent after annealing at 500 °C. The stress formation and relief mechanisms and their relationship to the local microstructure are discussed.