This study is concerned with the effects of microstructural parameters on the cracking phenomenon occurring during cold forging of two AISI 1010 steels that were fabricated by converter steel making and electric furnace steel making, respectively. This allowed a comparison between microstructures that contained a small or large amount of nitrogen. Detailed microstructural analyses of the cracked region showed that a number of adiabatic shear bands, along which cracks initiated and propagated, were formed in the top interior part of the cold-forged pulley. Dynamic torsional tests were conducted using a torsional Kolsky bar in order to investigate the dynamic deformation behavior during cold forging, and then the test data were compared via microstructures, mechanical properties, adiabatic shear banding, and fracture mode. From the dynamic shear stress-strain curves, the steel containing a considerable amount of nitrogen showed a smaller shear strain of 0.2 at the maximum shear stress point, after which the shear stress decreased rapidly prior to fracture, whereas the other steel containing a smaller amount of nitrogen showed relatively homogeneous shear deformation. This dynamic torsional behavior correlated well with the cracking and adiabatic shear banding behavior, together with the yield-point phenomenon occurring in the steel containing more nitrogen. Because the cracking occurring during cold forging was associated with the adiabatic shear banding and the yield-point phenomenon, the minimization of nitrogen and the fast cooling rate after hot rolling were suggested to prevent the cracking.