Herein, the relationships among nitrogen content, inclusion characteristics, microstructure, and mechanical properties of low-density steel are investigated. The austenite grain size is refined with nitrogen addition to the low-density steel, and the ultimate tensile strength, plasticity, fracture toughness, and impact toughness are distinctly enhanced. However, the yield strength decreases due to a decrease in the ferrite content with nitrogen addition. AlN is determined to be the main inclusion in the high-nitrogen low-density steel, and the number percentage of AlN that is less than 2 μm reaches 84%, which promotes the refinement of austenite grains. In addition, aggregated AlN inclusions in the dimples of the steel are observed, which are generated during the smelting process, and the aggregated AlN inclusions tend to cause crack initiation in the low-density steel.