Faced with the rapid development of large-scale pumped-storage power stations, the trade-off between the strength and toughness of hydropower steels in extreme environments has been limiting their application. The effects of Nb micro-alloying and direct quenching and tempering processes on the strengthening–toughening mechanism of 1000 MPa grade high-strength hydropower steel are studied in this paper, and the precipitation behavior of Nb is discussed. The results showed that only the 0.025Nb steel using the DQT process achieved a cryogenic impact energy of more than 100 J at −60 °C. Under the DQT process, a large number of deformation bands and dislocations were retained, refining the prior austenite grains and providing more nucleation sites for the precipitation of NbC during the cooling process. The DQT process has a more obvious local strain concentration, mainly focusing on the refined lath boundary, which indicates that the refinement of the microstructure also promotes the stacking of dislocations. The improvement in fine grain strengthening and dislocation strengthening by the DQT process jointly led to an increase in strength, resulting in a better combination of strength and toughness.