The plastic deformation behavior and microstructural changes in workpieces during ultra-precision machining have piqued the interest of many researchers. In this study, a molecular dynamics simulation of nano-cutting iron-carbon alloy (α-Fe) is established to investigate the effects of the fluid medium and cutting angle on workpiece temperature, friction coefficient, workpiece surface morphology, and dislocation evolution by constructing a molecular model of C12H26 as a fluid medium in the liquid phase using an innovative combined atomic approach. It is demonstrated that the presence of the fluid phase reduces the machining temperature and the friction coefficient. The cutting angle has a significant impact on the formation of the workpiece’s surface profile and the manner in which the workpiece’s atoms are displaced. When the cutting angle is 0°, 5°, or 10°, the workpiece’s surface morphology flows to both sides in a 45° direction, and the height of atomic accumulation on the workpiece surface gradually decreases while the area of displacement changes increases. The depth of cut increases as the cutting angle increases, causing greater material damage, and the presence of a fluid medium reduces this behavior. A dislocation reaction network is formed by the presence of more single and double-branched structures within the workpiece during the cutting process. The presence of a fluid medium during large-angle cutting reduces the number of dislocations and the total dislocation length. The total length of dislocations inside the workpiece is shorter for small angles of cutting, but the effect of the fluid medium is not very pronounced. Therefore, small cutting angles and the presence of fluid media reduce the formation of defective structures within the workpiece and ensure the machining quality.