This paper describes the development and characterisation of bainitic steel for rail applications based on carbide-free, low-alloy steel. The results show that after rolling and subsequently cooling, the designed carbide-free bainitic steel exhibits better mechanical performance than standard pearlitic steel. This is because of its fine, carbide-free bainitic microstructure, which consists of bainitic ferrite and retained austenite laths. Microstructural and mechanical property analysis was carried out using scanning and transmission electron microscopy, X-ray diffraction, hardness measurements, tensile and low-cycle fatigue tests. The obtained results demonstrate that during low cyclic deformation, a partial transformation of the retained austenite into deformed martensite α′ takes place, and strain-induced martensitic transformation occurs. The initial strengthening of the material during low-cycle fatigue was caused by the transformation of austenite into martensite and the increase in the dislocation density of the steel. In addition, an optimal amount of retained austenite in the form of thin layers and islands (dimensions not exceeding 1 µm) made it possible to obtain a high yield while maintaining the high plasticity of the steel. These microstructural features also contributed to the high crack resistance of the tested carbide-free bainitic steel.