Nitrogen and Sulfur in non-oriented electrical steel would form precipitates, which would severely affect its magnetic properties. Precipitates in compact strip production (CSP) process non-oriented electrical steel were investigated using a transmission electron microscope (TEM) and scanning electron microscopy (SEM). The precipitation mechanism and influence on grain growth were analyzed experimentally and theoretically. The results showed that the main particles in steel were AlN, TiN, MnS, Cu2S, and fine oxide inclusions. The spherical or quasi-spherical of MnS and Cu2S were more liable to precipitate along grain boundaries. During the soaking process, the amount of MnS precipitated on the grain boundary was much larger than that of Cu2S. AlN and TiN in cubic shape precipitated inside grains or grain boundaries. Precipitates preferentially nucleated at grain boundaries, and TiN, MnS mainly precipitated during soaking. In the subsequent processes after soaking, AlN and Cu2S would precipitate unceasingly with the decrease in the average size. The distribution density, the volume fraction, and the average size of the precipitates in the annealed sheets were 9.08 × 1013/cm3, 0.06%, and 54.3 nm, respectively. Precipitates with the grain size of 30–500 nm hindered the grain growth, the grains with 100–300 nm played a major role in inhibiting the grain growth, and the grains with the grain size of 70–100 nm took the second place.