The development of a laser cladding repair strategy is critical for the continued growth of heavy-haul railway networks. Premium hypereutectoid rails have undergone laser cladding using a new martensitic stainless-steel alloy, 415SS, developed for high carbon rails after standard cladding metals were found to be incompatible. Non-destructive neutron diffraction techniques were used to measure the residual stress in different layers generated across a dissimilar metal joint during laser cladding. The internal stress distribution across the cladding, heat-affected zone (HAZ), and substrate was measured in the untempered rail, after 350 °C and 540 °C heat treatment procedures and two surface grinding operations. The martensitic 415SS depositions produce compressive stress in the cladding, regardless of tempering procedures, which may inhibit fatigue crack propagation whilst grinding operations locally relive surface stress. Balancing tensile stresses were recorded below the fusion boundary in the HAZ due to thermal gradients altering the microstructure. The combination of 540 °C tempering and 0.5 mm surface layer removal produced a desirable combination of compression in the cladding deposition with significantly reduced tensile stresses in the HAZ. A comparison with the current literature shows that this alloy achieves a unique combination of desirable hardness, low tensile stress, and compression in the cladding layer. Data obtained during strain scanning has been used to determine the location of microstructural changes at the fusion boundary and HAZ through correlation of the stress, strain, full width at half maximum (FWHM), and intensity profiles. Therefore, neutron diffraction can be used for both the accurate measurement of internal residual stress and to obtain microstructural information of a metallurgical join non-destructively.