The present investigation correlates the austenite reversion and its stability during intercritical annealing (IA) with the tensile and Charpy impact properties of a low‐C naval grade steel. The as‐received steel is subjected to water quenching after austenitization at 950 °C, followed by IA at 620, 650, and 680 °C for 2 h. DICTRA simulation is used to predict the austenite reversion kinetics during the IA. Incorporation of cementite phase in the simulation correlates well with the experimental dilatometry results on the austenite growth kinetics. DICTRA simulation predicts a continuous rise in the reverted austenite fraction with increasing IA temperature. However, the percentage of reverted austenite, that gets retained after the subsequent quenching, decreases with increasing annealing temperature due to the reduction of austenite stability at elevated IA temperature. In other words, the amount of fresh untempered martensite increases rapidly with increasing IA temperature. Consequently, the sample annealed at an intermediate temperature of 650 °C (IA650) shows the best combination of strength, elongation, and low‐temperature impact properties as compared to the IA620 and IA680 steels due to an optimum balance of mechanically stable austenite and relatively lower untempered martensite fractions.