The cold-rolled microstructure formed in an interstitial-free (IF) steel from low to medium reductions has been investigated by using transmission electron microscopy. Dislocation cells formed early in the process and reduced in size until a critical strain was reached, beyond which they remained at a constant size of ϳ1-m diameter. The critical strain coincided with the formation of microbands, and it is proposed here that microbands carry all the deformation from their creation, rendering cell refinement unnecessary. Furthermore, since the dislocation densities of meshes and cells are almost identical and the stored elastic energy E cell is always less than E mesh , it is proposed that cells are derived from the dislocation mesh structure. Microbands grow quickly to a length that is limited by grain boundaries. The thermodynamic condition favoring microband formation is (∂E MB /∂) Ͻ (∂E Cell /∂), and the microbands are not derived from cell structures but from dislocation sheets or walls on which deformation is concentrated.