Laser annealing experiments are performed on cold rolled IF steel whereby highly localized microstructure and property modification are achieved. The microstructure is seen to develop by strongly heterogeneous recrystallization to provide steep gradients, across the submillimeter scale, of grain size and crystallographic texture. Hardness mapping by microindentation is used to reveal the corresponding gradients in macroscopic properties. A 2D level set model of the microstructure development is established as a tool to further optimize the method and to investigate, for example, the development of grain size variations due to the strong and transient thermal gradient. Particular focus is given to the evolution of the beneficial γ-fiber texture during laser annealing. The simulations indicate that the influence of selective growth based on anisotropic grain boundary properties only has a minor effect on texture evolution compared to heterogeneous stored energy, temperature variations, and nucleation conditions. It is also shown that although the α-fiber has an initial frequency advantage, the higher probability of γnucleation, in combination with a higher stored energy driving force in this fiber, promotes a stronger presence of the γ-fiber as also observed in experiments.