Laser cladding of gas-atomized M2 high-speed steel on the mild steel substrate was performed using scan rates of 1 to 10 mm/s, scan line spacings of 0.1 to 0.5 mm, and powder feed rates of 1 to 10 g/min, for a given laser power of 400 W. This article presents a detailed study of the microstructural evolution during laser cladding. The effect of scan rate, scan line spacing, and powder feed rate on cooling rate can be described in terms of the cladding-layer thickness, i.e., the thinner the layer, the higher the cooling rate. The degree of metastability in the laser-clad microstructure can be understood in terms of the lattice parameter of the bcc phase. The lattice parameter of the bcc phase increased with increasing layer thickness and reached a maximum value at a thickness of 0.3 mm. Correspondingly, the microstructure varied from a cellular or dendritic structure of ␦ ferrite and austenite to a mixture of martensite and retained austenite. However, further increasing the layer thickness led to a decrease of both the lattice parameters of the bcc phase and the proportion of retained austenite in the martensite. This was accompanied by an increase of the amount of carbide at the prior austenitic grain boundaries and a decrease of the carbon content in the martensite and retained austenite.